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 2% of sales. By the end of the first year of selling the product, total sales are $30 million, and actual warranty expenditures are $200,000. What amount (if any) should Sony report as a liability at the end of the year?"

Answer 1

Answer:

$400,000

Explanation:

Total sales × Percentage of sales

=$30,000,000 X 0.02%

= $600,000

($600,000 - $200,000)

= $400,000

Therefore the amount (if any) that Sony should report as a liability at the end of the year will be $400,000