During 2013, Going, Going, Gone sold 100 hot air balloons for $4,000 each. The balloons carry a 5-year warranty for defects. Estimates indicate 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 estimated warranty liability at the end of the year?

Question

Quizplus · Accepted Answer

The estimated warranty liability at the end of the year is calculated as follows: Initial liability ($42,000) + New warranty expense (4% of $400,000 = $16,000) - Claims incurred ($11,000) = $47,000.

During 2013, Going, Going, Gone Sold 100 Hot Air Balloons