AAA Co. a manufacturer of heavy machinery, grant a 2-year warranty on its products. The estimated liability for product warranty account shows these entries for 2020: Beginning Balance Provision during the year (quarterly accrual) 200,000 225,000 Total 425,000 A review of the company's policy of accounting for warranties revealed that based on the company's past experience, warranty claims averaged 5% on net sales. Moreover, the company provides for a quarterly accrual of the estimated warranties expenditures based on rough estimates. The following additional information is available from the company's records: Gross sales P7,250,000; Sales returns and allowances P150,000; Cost of sales P3,678,000. The cost of sales includes P415,500 cost of servicing the warranty for 2020. What is the correct balance of the estimated liability for product warranty at the end of 2020?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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AAA Co. a manufacturer of heavy machinery, grant a 2-year warranty on its products.
The estimated liability for product warranty account shows these entries for 2020:
Beginning Balance
Provision during the year (quarterly accrual) 200,000
225,000
Total
425,000
A review of the company's policy of accounting for warranties revealed that based on
the company's past experience, warranty claims averaged 5% on net sales. Moreover,
the company provides for a quarterly accrual of the estimated warranties expenditures
based on rough estimates. The following additional information is available from the
company's records: Gross sales P7,250,000; Sales returns and allowances P150,000; Cost
of sales P3,678,000. The cost of sales includes P415,500 cost of servicing the warranty
for 2020.
What is the correct balance of the estimated liability for product warranty at the end of
2020?
Transcribed Image Text:AAA Co. a manufacturer of heavy machinery, grant a 2-year warranty on its products. The estimated liability for product warranty account shows these entries for 2020: Beginning Balance Provision during the year (quarterly accrual) 200,000 225,000 Total 425,000 A review of the company's policy of accounting for warranties revealed that based on the company's past experience, warranty claims averaged 5% on net sales. Moreover, the company provides for a quarterly accrual of the estimated warranties expenditures based on rough estimates. The following additional information is available from the company's records: Gross sales P7,250,000; Sales returns and allowances P150,000; Cost of sales P3,678,000. The cost of sales includes P415,500 cost of servicing the warranty for 2020. What is the correct balance of the estimated liability for product warranty at the end of 2020?
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