Exhibit 13-4 During 2010, the Alexandra Company began selling a new type of machine that carries a two-year warranty against all defects.Based on past industry and company experience, estimated warranty costs should total $2, 000 per machine sold.During 2010, sales and actual warranty expenditures were $2, 000, 000 (40 machines)and $22, 000, respectively.
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Refer to Exhibit 13-4.What amount should Alexandra report as its estimated warranty liability at December 31, 2010?

Question

Quizplus · Accepted Answer

The estimated warranty liability at December 31, 2010, is calculated by taking the total estimated warranty costs for all machines sold ($2,000 per machine * 40 machines = $80,000) and subtracting the actual warranty expenditures for the year ($22,000). This results in an estimated warranty liability of $58,000 ($80,000 - $22,000).

Exhibit 13-4 During 2010, the Alexandra Company Began Selling a New