Big Top Electronics Inc. offers a two-year warranty on its products. The estimated liability is 4% of sales in the year of sale and 6% in the second year. Sales for 20X0 and 20X1 were: $2,500,000 and $2,800,000, respectively. They incurred no warranty costs in 20X0 but in 20X1 they spent $175,000 on repairs related to the warranties from 20X0 and 20X1.
-Big Top's warranty liability at the year-end 20X0 is
A) $0
B) $150,000
C) $100,000
D) $250,000

Question

Big Top Electronics Inc. offers a two-year warranty on its products. The estimated liability is 4% of sales in the year of sale and 6% in the second year. Sales for 20X0 and 20X1 were: $2,500,000 and $2,800,000, respectively. They incurred no warranty costs in 20X0 but in 20X1 they spent $175,000 on repairs related to the warranties from 20X0 and 20X1. 
-Big Top's warranty liability at the year-end 20X0 is
A) $0
B) $150,000
C) $100,000
D) $250,000

Quizplus · Accepted Answer

The Answer of Big Top Electronics Inc. offers a two-year warranty on its products. The estimated liability is 4% of sales in the year of sale and 6% in the second year. Sales for 20X0 and 20X1 were: $2,500,000 and $2,800,000, respectively. They incurred no warranty costs in 20X0 but in 20X1 they spent $175,000 on repairs related to the warranties from 20X0 and 20X1. 
-Big Top's warranty liability at the year-end 20X0 is
A) $0
B) $150,000
C) $100,000
D) $250,000