Joined: 26 Nov 2009 Location: United States
Online Status: Offline Posts: 58
Posted: 27 Nov 2009 at 18:53 | IP Logged
I have question about Estiamted warranty cost.
During 1990 Gum co intoduced a new product carrying a 2 year warrnaty against defects. Estimated warranty cost are 2% within 12 mnths followng sales and 4% in the second month following the sale. Sales and expenditure for dec 90 and 91
Sales 1990 150,000 , 1991 250,000
Actual exp1990: 2250,and 1991 7500
What amount should be reported as estimated warranty liability on Dec 91 Balance Sheet?
Joined: 15 Oct 2009 Location: United States
Online Status: Offline Posts: 47
Posted: 30 Nov 2009 at 10:01 | IP Logged
The problem doesn't state where the warranty costs are allocated
to, so there's no way to know if the 1990 sales' warranty liability
should be expired or not. Assuming they don't expire, the remaining
balance should be $14,250.
In 1990, sales of $150,000 create an estimated liability of $9,000
(2% in 1990 and 4% in 1991). Actual expenditures amount to $2,250
which reduce the total liability to $6,750.
In 1991, sales of $250,000 create an estimated liability of
$15,000. This increases the liability account to $21,750. Actual
expenditures of $7,500 lower the account to $14,250.
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Topic: Estimated Warranty Cost
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