Question

Sony introduces a new compact music player to compete with Apple's iPod that carries a two-year warranty against manufacturer's defects. Based on industry experience with similar product introductions, warranty costs are expected to be approximately 3% of sales. By the end of the first year of selling the product, total sales are $29.4 million, and actual warranty expenditures are $140,000. What amount (if any) should Sony report as a liability at the end of the year

Answer 1

the warranty liability is $742,000.

Step-by-step explanation:

The computation of the warranty liability is as follows;

= Expected warranty liability - actual warranty expenditure

= ($29.4 million × 3%) - $140,000

= $882,000 - $140,000

= $742,000

Hence, the warranty liability is $742,000.

It could be come by applying the above formula so that the accurate amount could arrive