Electronics4U 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 $200 per unit sold and reported a liability for estimated warranty costs $6.5 million at the beginning of this year.If during the current year, the company sold 50,000 units for a total of $243 million and paid warranty claims of $7,500,000 on current and prior year sales, what amount of liability would the company report on its statement of financial position at the end of the current year?

Question

Quizplus · Accepted Answer

First, we need to calculate the expected warranty cost based on the number of units sold during the current year: 
50,000 units x $200 per unit = $10,000,000

Next, we need to adjust the liability for the actual amount of warranty claims paid during the year: 
$6,500,000 (beginning liability) + $10,000,000 (current year estimated warranty cost) - $7,500,000 (warranty claims paid) = $9,000,000

Therefore, the amount of liability the company would report on its statement of financial position at the end of the current year is $9,000,000.

Electronics4U Manufactures High-End Whole Home Electronic Systems