McKay Company Sells Merchandise with a One-Year Warranty

Multiple Choice

McKay Company sells merchandise with a one-year warranty. In Year 1, sales consisted of 1,200 units. It is estimated that warranty repairs will average $10 per unit sold and 30% of the repairs will be made in Year 1 and 70% in Year 2. In the Year 1 income statement, McKay should show warranty expense of

A) $3,600
B) $8,400
C) $12,000
D) $0