During 2013, Rao Co. introduced a new line of machines that carry a three-year warranty against manufacturer's defects. Based on industry experience, warranty costs are estimated at 2% of sales in the year of sale, 3% in the year after sale, and 5% in the second year after sale. Sales and actual warranty expenditures for the first three-year period were as follows: (assume the accrual method) What amount should Rao report as a liability at December 31, 2015?
A) $0
B) $134,000
C) $105,000
D) $381,000

Question

During 2013, Rao Co. introduced a new line of machines that carry a three-year warranty against manufacturer's defects. Based on industry experience, warranty costs are estimated at 2% of sales in the year of sale, 3% in the year after sale, and 5% in the second year after sale. Sales and actual warranty expenditures for the first three-year period were as follows: (assume the accrual method)  What amount should Rao report as a liability at December 31, 2015?
A) $0 
B) $134,000 
C) $105,000 
D) $381,000

Quizplus · Accepted Answer

The Answer of During 2013, Rao Co. introduced a new line of machines that carry a three-year warranty against manufacturer's defects. Based on industry experience, warranty costs are estimated at 2% of sales in the year of sale, 3% in the year after sale, and 5% in the second year after sale. Sales and actual warranty expenditures for the first three-year period were as follows: (assume the accrual method)  What amount should Rao report as a liability at December 31, 2015?
A) $0 
B) $134,000 
C) $105,000 
D) $381,000