Question

Carpenter Incorporated estimates warranty expense at 3% of sales. Sales during the year were $7 million and warranty expenditures during the year were $51,500. What was the balance in the Warranty Liability account at the end of the year? $210,000 $173,500 $51,500 $158,500

Answer 1

The balance in the Warranty Liability account at the end of the year is calculated by subtracting actual warranty expenditures from the estimated warranty expense based on sales. With sales of $7 million and a 3% warranty expense rate, the estimated warranty liability was $210,000. After accounting for $51,500 in actual expenditures, the ending balance is $158,500.

Step-by-step explanation:

The student's question concerns how to calculate the balance in the Warranty Liability account at the end of the year given certain financial data from Carpenter Incorporated. To find the balance, we need to apply the estimated warranty expense percentage to the total sales and then adjust for actual warranty expenditures.

Estimated Warranty Expense = Sales × Estimated Warranty Expense Rate

= $7,000,000 × 0.03 = $210,000

Warranty Liability at the end of the year = Estimated Warranty Expense - Actual Warranty Expenditures

= $210,000 - $51,500 = $158,500

Therefore, the balance in the Warranty Liability account at the end of the year is $158,500.