Excom manufactures high-end whole home electronic systems. The company provides a one-year warranty for all products sold. The company estimates that the warranty cost is $225 per unit sold and reported a liability for estimated warranty costs $7.8 million at the beginning of this year. If during the current year, the company sold 60,000 units for a total of $243 million and paid warranty claims of $9,000,000 on current and prior year sales, what amount of liability would the company report on its balance sheet at the end of the current year? (assume accrual method)
A) $2,800,000.
B) $4,500,000.
C) $12,300,000.
D) $13,500,000.

Question

Quizplus · Accepted Answer

The company would report a liability of $12,300,000 at the end of the year. This is calculated by adding the estimated warranty costs for the current year sales ($225 * 60,000 = $13,500,000) to the beginning liability ($7,800,000), and then subtracting the warranty claims paid during the year ($9,000,000). So, $7,800,000 + $13,500,000 - $9,000,000 = $12,300,000.

Excom Manufactures High-End Whole Home Electronic Systems