Question

During its first year of business, Oceanic, Inc. has sales of $300,000 and pays warranty claims of $10,400. Oceanic offers a one-year warranty and anticipates that warranty costs will total 5% of sales. What is the balance in Oceanic's Warranty Liability account at the end of the first year?

Answer 1

$4,600

Step-by-step explanation:

The computation of the balance in Oceanic's Warranty Liability account is shown below:

= Sales × estimated percentage - warranty claims

= $300,000 × 5% - $10,400

= $15,000 - $10,400

= $4,600

We simply find out estimated warranty cost and then deduct the warranty claims so that the accurate value can come.

Thus, All the items are need to be considered for the computation part.