Fail-Safe Computer Inc

question 4

Multiple Choice

Fail-Safe Computer Inc. sells equipment with a 2-year warranty. Prior experience indicates that costs for warranty repairs average 3% in the first year, and 2% in the second year. Sales were $300,000 and $400,000 in fiscal 2012 and 2013 respectively. It paid $5,000 for materials and labour to make warranty-related repairs in 2012. What amount will be recorded as warranty expense in 2012?

• A)$15,000
• B)$20,000
• C)$21,000
• D)$26,000

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