In 2017,Morton Co.sold 150 hot air balloons at $4,000 each.The balloons carry a five-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 $14,000.$20,000 in claims was actually incurred during the year to honor their warranty.What was the warranty expense for 2017?

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Quizplus · Accepted Answer

The warranty expense for 2017 is calculated by first determining the estimated warranty liability for the sales made in 2017, which is 4% of the total selling price (150 balloons * $4,000 each = $600,000; 4% of $600,000 = $24,000). The beginning warranty liability was $14,000, and actual claims of $20,000 were incurred. The expense for the year is the additional amount needed to cover the estimated liability for the year's sales, which is $24,000, regardless of the beginning liability or the actual claims paid during the year.