A new product introduced by Sunbound Promotions carries a two-year warranty against defects.The estimated warranty costs related to dollar sales are as follows: Sales and actual warranty expenditures for the years ended December 31,2013 and 2014,are as follows:
What amount should Sunbound report as its estimated liability as of December 31,2014?

Question

A new product introduced by Sunbound Promotions carries a two-year warranty against defects.The estimated warranty costs related to dollar sales are as follows:  Sales and actual warranty expenditures for the years ended December 31,2013 and 2014,are as follows:
 What amount should Sunbound report as its estimated liability as of December 31,2014?

Quizplus · Accepted Answer

Using the product warranty formula, the estimated warranty liability for December 31, 2014 is:

Estimated liability = (Warranty rate) x (Dollar sales)

Estimated liability = (2.5%) x ($2,240,000)

Estimated liability = $56,000

A New Product Introduced by Sunbound Promotions Carries a Two-Year