The Knox Company has recorded an estimated liability for warranty claims of $10,000 in 2015 for products sold. In 2016, some of the items sold in 2015 break, and the Knox Company spends $9,000 to fix them. The warranties have not yet expired, and some more items may still break. In 2016, the Knox Company should record:

Question

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Since the warranties have not yet expired, the Knox Company will need to continue to accrue for potential warranty claims. The $9,000 paid out in 2016 is a reduction in the liability that was recorded in 2015. Therefore, the Knox Company should record a reduction in warranty liability of $9,000, and a corresponding reduction in cash of $9,000.

The Knox Company Has Recorded an Estimated Liability for Warranty