Ranch Company estimates warranty expense as 5% of sales. On January 1, warranties payable was $13,000. During the year Ranch paid $5,000 to meet its warranty obligations and recorded sales of $120,000. The December 31 liability for the warranty is
A)$10,000.
B)$12,000.
C)$6,000.
D)$14,000.

Question

Quizplus · Accepted Answer

The estimated warranty expense for the year is 5% of $120,000 in sales, which equals $6,000. The beginning warranty payable was $13,000, and $5,000 was paid to meet warranty obligations. Therefore, the ending liability is $13,000 + $6,000 - $5,000 = $14,000.

Ranch Company Estimates Warranty Expense as 5% of Sales