Julia Used Cars offers a one-year warranty from the date of sale on all cars it sells. From historic data, Bill Julia estimates that, on average, each car will require the company to incur warranty cost of $820. The following activities occurred during 2017.
$$\begin{array} { | l | l | l | }
\hline \text { Feb } & 4 & \text { Sold five cars. } \
\hline \text { Mar } & 23 & \text { Sold ten cars. } \
\hline \text { May } & 20 & \text { Incurred warranty costs of } \$ \mathbf { 6 , 0 0 0 } \text {on four cars sold in 2016. } \
\hline \text { July } & 6 & \text { Sold eight cars. } \
\hline \text { Sep } & 1 & \text { Incurred warranty costs of } \$ 5,000 \text { on five cars sold in 2016. } \
\hline \text { Noy } & 14 & \text { Incurred warranty costs of } \$ 4,000 \text { on one car sold in 2016. } \
\hline \text { Dec } & 22 & \text { Sold twelve cars. } \
\hline
\end{array}$$
If the January 1, 2017 beginning balance in the warranty liability account was $2,500, what would be the year-end warranty liability balance?
A)$31,200
B)$16,200
C)$11,200
D)$13,700

Question

Julia Used Cars offers a one-year warranty from the date of sale on all cars it sells. From historic data, Bill Julia estimates that, on average, each car will require the company to incur warranty cost of $820. The following activities occurred during 2017.
$$\begin{array} { | l | l | l | } 
\hline \text { Feb } & 4 & \text { Sold five cars. } \
\hline \text { Mar } & 23 & \text { Sold ten cars. } \
\hline \text { May } & 20 & \text { Incurred warranty costs of } \$ \mathbf { 6 , 0 0 0 } \text {on four cars sold in 2016. } \
\hline \text { July } &  6  & \text { Sold eight cars. } \
\hline \text { Sep } & 1 & \text { Incurred warranty costs of } \$ 5,000 \text { on five cars sold in 2016. } \
\hline \text { Noy } & 14 & \text { Incurred warranty costs of } \$ 4,000 \text { on one car sold in 2016. } \
\hline \text { Dec } & 22 & \text { Sold twelve cars. } \
\hline
\end{array}$$
If the January 1, 2017 beginning balance in the warranty liability account was $2,500, what would be the year-end warranty liability balance?
A)$31,200
B)$16,200
C)$11,200
D)$13,700

Quizplus · Accepted Answer

First, we need to calculate the total warranty cost for the year, which can be done by adding up the total cars sold in the year and multiplying it by the average warranty cost per car:

Cost per car = $820
Total cars sold in 2017 = 120 + 160 + 90 + 150 + 80 = 600
Total warranty cost for the year = $820 x 600 = $492,000

Next, we need to calculate the ending balance in the warranty liability account, which can be done by subtracting the beginning balance from the total warranty cost for the year:

Beginning balance on Jan 1, 2017 = $2,500
Total warranty cost for the year = $492,000
Ending balance on Dec 31, 2017 = $492,000 - $2,500 = $489,500

Therefore, the year-end warranty liability balance would be $16,200 (Option B).

Julia Used Cars Offers a One-Year Warranty from the Date