Question

On 4/1/Y9, Petal Corp. began offering a new product for sale under a 1-year warranty. Petal had 5,000 units in inventory on 4/1/Y9. By 6/30/Y9, 3,000 of these units had been sold. Based on its experience with similar products, Petal estimated that the average warranty cost per unit sold would be $8. Actual warranty costs incurred from April 1 through June 30, Year 9, were $7,000.

Required:
1. What amount should Petal report as estimated warranty liability at June 30, Year 9?

Answer 1

$17,000

Step-by-step explanation:

Units sold = 3,000 units

Expected warranty = 3,000 * $8 = $24,000

Actual warranty costs = $7,000

Estimated warranty liability = $24,000 - $7,000 = $17,000

Therefore, Petal should report $17,000 as estimated warranty liability at June 30, Year 9.