Question

Star Appliance sells previously owned appliances. Each appliance carries a one-year warranty against defects. Suppose that appliance sales for the entire month of December are $50,000. The company expects future warranty costs to be 3% of sales. What amount should Star Appliance report as a liability on December 31?

Answer 1

$1,500

Step-by-step explanation:

Data provided in the question

Sales for the appliances for the entire month = $50,000

Expected future warranty cost = 3% of sales

By considering the above information, the amount that should be reported as a liability is

= Sales for the appliances for the entire month × Expected future warranty cost

= $50,000 × 3%

= $1,500

Simply we multiplied the sales with the given percentage so that the liability amount could arrive