In 2016, 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 total selling price of the balloons is 100 * $4,000 = $400,000. The estimated repair costs at 4% of the total selling price is $400,000 * 4% = $16,000. The beginning estimated warranty liability was $42,000. After incurring $11,000 in claims, the company would adjust the liability by adding the new estimate and subtracting the claims, resulting in an ending liability of $42,000 + $16,000 - $11,000 = $47,000.