Exhibit 9-4
During 2016, the Thomas Company began selling a new type of machine that carries a two-year assurance-type warranty against all defects. Based on past industry and company experience, estimated warranty costs should total
$2,000 per machine sold. During 2016, sales and actual warranty expenditures were $4,000,000 80 machines) and
$44,000, respectively. Thomas uses the GAAP approach of accruing warranty expense and the related liability) in the year of the sale.
-Refer to Exhibit 9-4. What amount should Thomas report as its estimated warranty liability at December 31, 2016?

Question

Quizplus · Accepted Answer

The estimated warranty liability at December 31, 2016, is calculated by taking the total estimated warranty costs for all machines sold ($2,000 per machine * 80 machines = $160,000) and subtracting the actual warranty expenditures for the year ($44,000). This results in an estimated warranty liability of $116,000 ($160,000 - $44,000).

Exhibit 9-4 During 2016, the Thomas Company Began Selling a New Type