Use the following information for questions 37-39.
Jems & Jewels Inc. offers a two-year warranty against failure of its products. The estimated liability is 4% of sales in the year of sale and 6% in the second year. Sales for 2016 and 2017 were: $2,500,000 and $2,800,000, respectively. They incurred no warranty costs in 2016 but in 2017 they spent $175,000 on repairs related to the warranties from 2016 and 2017.
-The warranty liability as at the end of the 2017 year was

Question

Quizplus · Accepted Answer

The warranty liability at the end of 2017 is calculated as follows: For 2016 sales, 4% is $100,000 and 6% is $150,000, totaling $250,000. For 2017 sales, 4% is $112,000. Total estimated liability is $362,000. Subtract the $175,000 spent on repairs, leaving a liability of $187,000. However, the correct calculation should be $355,000, considering the correct allocation of expenses and liabilities.

Use the Following Information for Questions 37-39