In 2015, the Magtag Company sold 16,000 ovens. Magtag estimated that 14% of the machines would require repairs under the two-year assurance-type warranty at an average cost of $60. During 2015, Magtag had an actual outlay of $62,000 for repairs under warranty. Magtag uses the GAAP approach of accruing warranty expense (and the related liability) in the year of the sale. Refer to Exhibit 9-2. What amount should the company report for estimated liability under warranties at the end of 2015? A $62,000 B $72,400 C $84,000 D $48,000
In 2015, the Magtag Company sold 16,000 ovens. Magtag estimated that 14% of the machines would require repairs under the two-year assurance-type warranty at an average cost of $60. During 2015, Magtag had an actual outlay of $62,000 for repairs under warranty. Magtag uses the GAAP approach of accruing warranty expense (and the related liability) in the year of the sale. Refer to Exhibit 9-2. What amount should the company report for estimated liability under warranties at the end of 2015? A $62,000 B $72,400 C $84,000 D $48,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Exhibit 9-2
In 2015, the Magtag Company sold 16,000 ovens. Magtag estimated that 14% of the machines would require repairs under the two-year assurance-type warranty at an average cost of $60. During 2015, Magtag had an actual outlay of $62,000 for repairs under warranty. Magtag uses the GAAP approach of accruing warranty expense (and the related liability) in the year of the sale.
Refer to Exhibit 9-2. What amount should the company report for estimated liability under warranties at the end of 2015?
A $62,000
B $72,400
C $84,000
D $48,000
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