Exhibit 9-2
In 2015, the Magtag Company sold 16,000 ovens. Magtag estimated that 14% of the machines would require repairs under the two-year assurance-type warranty at an average cost of $60. During 2015, Magtag had an actual outlay of
$62,000 for repairs under warranty. Magtag uses the GAAP approach of accruing warranty expense and the related liability) in the year of the sale.
-Refer to Exhibit 9-2. What amount should the company report for estimated liability under warranties at the end of 2015?

Question

Quizplus · Accepted Answer

The estimated liability under warranties at the end of 2015 is calculated as follows: 16,000 ovens * 14% estimated to require repairs * $60 average cost per repair = $134,400 total estimated cost. Since $62,000 was already spent on repairs in 2015, the remaining liability is $134,400 - $62,000 = $72,400.

Exhibit 9-2 In 2015, the Magtag Company Sold 16,000 Ovens. Magtag Estimated