Madden Electric Began Operations in 2010 and Provides a One

Madden Electric began operations in 2010 and provides a one year warranty on the products it sells. They estimate that 10,000 of the 200,000 units sold in 2010 will be returned for repairs and that these repairs will cost $6 per unit. The cost of repairing 8,000 units presented for service in 2010 was $48,000. Madden should report

A) warranty expense of $12,000 for 2010.
B) warranty expense of $60,000 for 2010.
C) estimated warranty liability of $60,000 on December 31, 2010.
D) no warranty obligation on December 31, 2010, since this is only a contingent liability.

Correct Answer:

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