Seamus Corporation sold 10,500 trash compactors for £550 each during 2011.The trash compactors are under warranty for one year following the sale.Maintenance on the trash compactors during the warranty period averages £45 each.Actual warranty costs incurred during 2011 for units sold that year were £148,000.The statement of financial position at year end will report a related liability of:

Question

Quizplus · Accepted Answer

The related liability for warranties can be calculated as follows:
Expected Warranty Costs = (Number of Units Sold during the year) x (Average Warranty Cost per Unit)
Expected Warranty Costs = 10,500 x £45 = £472,500
Actual Warranty Costs Incurred = £148,000
Therefore, the related liability for warranties at year end would be:
Related Liability = Expected Warranty Costs - Actual Warranty Costs Incurred
Related Liability = £472,500 - £148,000 = £324,500
So, the correct answer is B.

Seamus Corporation Sold 10,500 Trash Compactors for £550 Each During