Question

Talks-A-Lot, Inc. sells cell phones to customers and expects that 10% of phones sold will be returned for repair under its warranty program. The average repair cost is $75 per phone. For 2021, Talks-A-Lot has sold 690 cell phones and has repaired 14 of them as of December 31, 2021. What amount of warranty liability should be reported at December 31, 2021

Answer 1

$4,125

Step-by-step explanation:

Calculation of the amount of warranty liability which should be reported at December 31, 2021

First step

Sales(Cellphone) × Percentage of sold phone ×Average repair cost

($690 x 10%) =$69

$69×$75

=$5,175

Second step

= $5,175 - (14 x $75) = $3,375

=$5,175-$1,050

=$4,125

Therefore the amount of warranty liability which should be reported at December 31, 2021 is $4,125