Question

At the beginning of 20x1, Sun Angel Corporation began offering a two-year warranty on its products. The warranty program was expected to cost Sun Angel 1% of net sales in the first 12 months and 3% of net sales in the second 12-month period. Net sales made under warranty in 20x1 were $180 million. Fifteen percent of the units sold were returned in 20x1 and repaired or replaced at a cost of $5.3 million. The amount reported on Sun Angel's 20x1 year end balance sheet for Est. Warranty Liability is: Group of answer choices

Answer 1

Answer:

The correct answer is 1,900,000 dollars.

Explanation:

This question requires us to calculate the amount that the Sun angel will recognize as warrantly liability in it balance sheet for the year ended at 20x1.

The sales made during the year is 180 millions dollars. So the company will recognize the provision as follow (during the year)

(180M * 4%= 7.2M)

Debit Warrantly Expense    $7.2M

Credit Liability                      $7.2M

Claim entertain during the year that has reduce the above recognize liabilty is

Debit Liabilty                    $5.3M

Credit Cash                      $5.3M

Liability to be reported = $7.2M - $5.3M = 1,900,000 dollars