Landfall Navigation began operations in 2020 and provides a one year warranty on the products it sells. They estimate that 20,000 of the 400,000 units sold in 2020 will be returned for repairs and that these repairs will cost $8 per unit. The cost of repairing 16,000 units presented for service in 2020 was $128,000. Landfall should report
a. warranty expense of $32,000 for 2020.
b. warranty expense of $128,000 for 2020.
c. warranty liability of $160,000 on December 31, 2020.
d. no warranty obligation on December 31, 2020, since this is only a contingent liability.
Answer is b. warranty expense of $128,000 for 2020.
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