In 2017,Scranton,Inc.sold 2,000 carpets for $50 each.The carpets carry a two-year warranty for repairs.Scranton estimates that repair costs will average 3% of the total selling price.What amount would be recorded in the warranty liability account as a result of selling the carpets during 2017?
A)$1,500
B)$3,000
C)$50
D)No liability should be recorded until the carpets are returned for repairs.

Question

Quizplus · Accepted Answer

The warranty liability account should be recorded at the time of sale because the company has an obligation to provide repairs for two years. The estimated repair cost is 3% of the selling price, which is $1.50 per carpet ($50 x 0.03). Therefore, the total warranty liability for the 2,000 carpets sold is $3,000 ($1.50 x 2,000).