Question

A company’s sales for January are $250,000. If the company projects warranty obligations to be 5% of sales, what is the warranty liability amount for January?

a) $2,500
b) $5,000
c) $12,500
d) $25,000

Answer 1

To find the warranty liability amount for January, 5% of the company's January sales is taken. The company's January sales were $250,000, thus the warranty liability is 0.05 times $250,000, which equals $12,500.

Step-by-step explanation:

To calculate the warranty liability amount for January, we need to find 5% of the company's sales for that month. The company's sales in January are $250,000. Therefore, the warranty liability can be calculated as follows:

Warranty Liability = Sales for January X Percentage of Warranty Obligations
Warranty Liability = $250,000 X 0.05
Warranty Liability = $12,500

Thus, the correct answer is c) $12,500.