Question

high-end whole home electronic systems. The company provides a one-year warranty for all products sold. The company estimates that the warranty cost is $310 per unit sold and reported a liability for estimated warranty costs $10.6 million at the beginning of this year. If during the current year, the company sold 59500 units for a total of $324 million and paid warranty claims of $12120000 on current and prior year sales, what amount of liability would the company report on its balance sheet at the end of the current year?

Answer 1

$16,925,000

Step-by-step explanation:

The company estimates that the warranty cost is $310 per units sold

The estimated warranty costs at the beginning of the year is $10,600,000

In the current year, the company sold 59,500 units

The company paid warranty claims of $12120000

Therefore, the amount of liability that should be reported at the end of the current year can be calculated as follows

= 10,600,000+(59,500×310)-$12,120,000

= $10,600,000+18,445,000 -$12,120,000

= $29,045,000-$12,120,000

= $16,925,000

Hence the amount of liability that should be reported on the balance sheet at the end of the current year is $16,925,000