Talks-A-Lot,Inc.sells cell phones to customers and expects that 10% of phones sold will be returned for repair under its warranty program.The average repair cost is $75 per phone.For 2012,Talks-A-Lot has sold 750 cell phones and has repaired 30 of them as of December 31,2012.What amount of warranty liability should be reported at December 31,2012?

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Quizplus · Accepted Answer

The expected warranty liability is calculated as 10% of 750 phones, which is 75 phones. Since 30 phones have already been repaired, 45 phones are expected to be repaired. The liability is 45 phones x $75 = $3,375.