Exhibit 9-2 In 2013, the Magtag Company sold 16,000 ovens. Magtag estimated that 14% of the machines would require repairs under the two-year warranty at an average cost of $60. During 2013, Magtag had an actual outlay of $62,000 for repairs under warranty. Magtag uses the expense warranty accrual method.

-Refer to Exhibit 9-2. What amount should the company report for estimated liability under warranties at the end of 2013?

Question

-Refer to Exhibit 9-2. What amount should the company report for estimated liability under warranties at the end of 2013?

Quizplus · Accepted Answer

To calculate the estimated liability under warranties, we need to multiply the total number of ovens sold by the estimated percentage of ovens requiring repairs and the average cost of repairs:
16,000 x 0.14 x $60 = $134,400
This represents the total estimated liability under warranties. Since the company had an actual outlay of $62,000 for repairs, we subtract that amount from the total estimated liability to get the estimated liability at the end of 2013:
$134,400 - $62,000 = $72,400 
Therefore, the company should report an estimated liability under warranties of $72,400 at the end of 2013.

Exhibit 9-2 in 2013, the Magtag Company Sold 16,000 Ovens