Final answer:
To determine Blevert Co.'s warranty liability for 2017, we calculate the estimated expenditures based on sales data and subtract the actual warranty expenses. The calculation shows that Blevert Co. has spent more on warranty claims than the amount they estimated, resulting in no warranty liability that needs to be reported at the end of 2017.
Step-by-step explanation:
To compute the warranty liability that Blevert Co. should report at December 31, 2017, we need to calculate the expected warranty expenditures based on the given percentages and sales data, and then subtract the actual warranty expenditures to determine the remaining liability. Here's a breakdown of the estimated warranty costs based on sales:
For 2015 sales ($500,000): 1% in 2015, 3% in 2016, and 5% in 2017. Total estimated = 1% + 3% + 5% = 9% of $500,000 = $45,000.
For 2016 sales ($1,500,000): 1% in 2016 and 3% in 2017. Total estimated = 1% + 3% = 4% of $1,500,000 = $60,000.
For 2017 sales ($2,000,000): 1% in 2017. Total estimated = 1% of $2,000,000 = $20,000.
Now sum these up for the total estimated warranty costs: $45,000 (2015) + $60,000 (2016) + $20,000 (2017) = $125,000. From this, we then subtract the total actual warranty expenditures up to the end of 2017: $6,000 (2015) + $25,000 (2016) + $105,000 (2017) = $136,000. Thus, the estimated warranty liability at the end of 2017 is negative, indicating that Blevert Co. has spent more on warranties than they initially estimated.
However, companies cannot report a negative warranty liability. In this situation, Blevert Co. would report a warranty liability of $0 on their balance sheet at December 31, 2017, because the actual expenses exceeded the estimated expenses.