In 2015, Morton Co. sold 100 hot air balloons at $4,000 each. The balloons carry a 5-year warranty for defects. Morton estimates that repair costs will average 4% of the total selling price. The estimated warranty liability at the beginning of the year was $42,000. $11,000 in claims was actually incurred during the year to honor their warranty. What was the balance in the ending estimated warranty liability at the end of the year?

Question

Quizplus · Accepted Answer

The estimated warranty liability is calculated as follows: Beginning liability ($42,000) + Estimated warranty expense for the year (4% of $400,000 = $16,000) - Actual claims incurred ($11,000) = Ending liability ($47,000).