In 2018, Dubious company began selling new line of products that carry a two-year warranty against defects. Based upon past experience with other products, the estimated warranty costs related to peso sales are as follows: First year of warranty 2% 2nd year of warranty 5% Sales and actual

In 2018, Dubious company began selling new line of products that carry a two-year warranty against defects. Based upon past experience with other products, the estimated warranty costs related to peso sales are as follows: First year of warranty 2% 2nd year of warranty 5% Sales and actual

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter8: Current And Contingent Liabilities

Section: Chapter Questions

Problem 57BE

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Question

In 2018, Dubious company began selling new line of products that carry a two-year warranty against defects. Based upon past experience with other products, the estimated warranty costs related to peso sales are as follows:

First year of warranty 2%

2^nd year of warranty 5%

Sales and actual warranty expenditures are presented below:

2018 2019

Sales 5,000,000 7,000,000

Actual warranty costs 100,000 300,000

What is the estimated warranty liability on Dec. 31, 2019?

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