Question

Sony introduces a new compact music player to compete with Apple's iPod that carries a two-year warranty against manufacturer's defects. Based on industry experience with similar product introductions, warranty costs are expected to be approximately 3% of sales. By the end of the first year of selling the product, total sales are $29.1 million, and actual warranty expenditures are $110,000. What amount (if any) should Sony report as a liability at the end of the year

Answer 1

Answer:

$763,000

Explanation:

Warranty costs = 3%

Total sales = $29.1million ($29,100,000)

actual warranty expenditures = $110,000

First we multiply warranty cost by total sale

$29100000 x 0.03

= $873,000

Then

Subtract $110,000 from $873,000

$873000 - $110000

= $763,000

Sony should report $763,000 as liability