Question

Weiss Lenscorp, a maker of camera lenses, provides a 3-year warranty against defects on all of its products. In fulfilling its warranty obligation, the company expects to incur costs equal to 1% of sales in the first year of the warranty period, 2% of sales in the second year, and 3% of sales in the third year. These estimates are based on the company’s past experience and are considered to be reliable. Weiss’s 12/31/08 balance sheet reported "estimated liability for product warranties" of $3,370,000. For the year ending 12/31/09, Weiss’s sales totaled $32,000,000. Actual warranty expenditures made during 2009 totaled $1,780,000. What amount should Weiss report as "warranty expense" in its 2009 income statement, and what "estimated liability for product warranties" should it report on its 12/31/09 balance sheet?

Answer 1

Answer:

warranty liablity account ending balance:  3,510,000

Explanation:

In total, we expect a warranty expense for 6% for each sale distributed among three years.

For the 32,000,000 million sales for 2019 we expect:

32,000,000 x 6% = 1,920,000 warranty expense.

                                   warranty liaiblity

                                   debit       credit

beginning                                3,370,000

expenditures          1,780,000

warranty expense                   1,920,000

balance                                    3,510,000