Question

A manufacturing company sells motorcycles with a five-year warranty against manufacturer's defects. The manufacturer expects that 0% of the motorcycles sold will prove to be defective in the first year after they are sold, 1% will prove to be defective in the second year, 2% will prove to be defective in the third and fourth years, and 3% will prove to be defective in the fifth year. The average cost to repair or replace a defective unit under the warranty is expected to be $40.

The company's sales and warranty costs incurred in its first five years were as follows:

Year	Units Sold	Actual Costs of Repairs and Replacements under the Warranty Plan
2016	6,500	$500
2017	8,600	$15,200
2018	10,300	$31,900
2019	11,600	$23,800
2020	5,900	$11,700

a. Calculate the amount that should have appeared in the estimated Warranty Provision account at the end of 2018. Assume the balance in the Warranty Provision account was zero at the beginning of 2016.

Estimated warranty provision account, Dec. 31, 2018:

b. Calculate the amount of warranty expense that should have been recognized in 2019.

Warranty expense $

Answer 1