During 2008, Blass Co. introduced a new product carrying a two-year warranty against defects. The estimated warranty costs related to dollar sales are 2% within 12 months following sale and 4% in the second 12 months following sale. Sales and actual warranty expenditures for the years ended December 31, 2008 and 2009 are as follows:
At December 31, 2009, Blass should report an estimated warranty liability of
A) $0.
B) $10,000.
C) $30,000.
D) $66,000.

Question

During 2008, Blass Co. introduced a new product carrying a two-year warranty against defects. The estimated warranty costs related to dollar sales are 2% within 12 months following sale and 4% in the second 12 months following sale. Sales and actual warranty expenditures for the years ended December 31, 2008 and 2009 are as follows:
 At December 31, 2009, Blass should report an estimated warranty liability of
A) $0. 
B) $10,000. 
C) $30,000. 
D) $66,000.

Quizplus · Accepted Answer

($1,800,000 × .06) - $42,000 = $66,000.