In 2016, Baloga Heating Company sold 400 water heaters for $350 each.The water heaters carry a 2-year warranty for repairs.Baloga estimates that repair costs will average 2% of the total selling price.How much is recorded in the warranty liability account as a result of selling the water heaters during 2016?

Question

Quizplus · Accepted Answer

To calculate the warranty liability, we need to multiply the total number of water heaters sold by the estimated repair cost percentage and the selling price.

2% of $350 = $7

$7 x 400 = $2,800

Therefore, option B is the correct answer. Option D is incorrect as the liability should be recorded at the time of sale as per the matching principle in accounting.

In 2016, Baloga Heating Company Sold 400 Water Heaters for $350