Panther Co. had a warranty liability of $350,000 at the beginning of 2013 and $310,000 at the end of 2013. Warranty expense is based on 4% of sales, which were $50 million for the year. What were the warranty expenditures for 2013?
A)$0.
B)$1,960,000.
C)$2,000,000.
D)$2,040,000.

Question

Quizplus · Accepted Answer

Warranty expense = 4% of sales = 0.04 x $50,000,000 = $2,000,000

Warranty expenditures = (Warranty liability at beginning of year) - (Warranty liability at end of year) + Warranty expense
= ($350,000) - ($310,000) + ($2,000,000) = $2,040,000

Therefore, the best choice is D, with an explanation as shown above.