During 2007, Younger Co. introduced a new line of machines that carry a three-year warranty against manufacturer's defects. Based on industry experience, warranty costs are estimated at 2% of sales in the year of sale, 4% in the year after sale, and 6% in the second year after sale. Sales and actual warranty expenditures for the first three-year period were as follows:
What amount should Younger report as a liability at December 31, 2009?
A) $0
B) $15,000
C) $204,000
D) $315,000

Question

During 2007, Younger Co. introduced a new line of machines that carry a three-year warranty against manufacturer's defects. Based on industry experience, warranty costs are estimated at 2% of sales in the year of sale, 4% in the year after sale, and 6% in the second year after sale. Sales and actual warranty expenditures for the first three-year period were as follows:
 What amount should Younger report as a liability at December 31, 2009?
A) $0 
B) $15,000 
C) $204,000 
D) $315,000

Quizplus · Accepted Answer

($4,200,000 × .12) - $189,000 = $315,000