Carpenter Inc.estimates warranty expense at 2% of sales.Sales during the year were $4 million and warranty expenditures were $44,000.What was the balance in the Warranty Liability account at the end of the year?

Question

Quizplus · Accepted Answer

The formula for calculating the balance in the warranty liability account is: 
Beginning Balance + Expenses - Payments = Ending Balance 
We are given the expenses ($44,000) and the sales ($4 million), and we are told that the estimated warranty expense is 2% of sales. Therefore, the estimated warranty expense is $80,000 (2% of $4 million). 
Using the formula, we can solve for the ending balance: 
0 + $80,000 - $44,000 = $36,000. 
Therefore, the balance in the Warranty Liability account at the end of the year was $36,000.