Question

A company begins operations in Year 1 and offers a one-year warranty on all products sold. Total appliance sales in Year 1 are $1,600,000, and the company estimates future warranty costs in Year 2 to be 2% of current sales. Actual warranty costs in Year 2 are $25,000. Also in Year 2, the company has additional sales of $2,400,000 and revises its estimate of warranty costs associated with sales in Year 2 to be 1.5%. Exercise 8-15B Part 4 4. What is the balance in Warranty Liability at the end of Year 1 and Year 2

Answer 1

Answer: See explanation

Explanation:

Based on the information given in the question, the balance in Warranty Liability at the end of Year 1 and Year 2 will be calculated thus:

Balance in Warranty Liability at the end of Year 1 will be:

= $1,600,000 × 2%

= $1,600,000 × 0.02

= $32,000

Balance in Warranty Liability at the end of Year 2 will be:

= $2,400,000 × 1.5%

= $2,400,000 × 0.015

= $36,000