Actual Warranty Expenditures $ 3,000 15,000 45,000 $63,000 Sales $ 200,000 500,000 700,000 $1,400,000 2019 2020 2021
Actual Warranty Expenditures $ 3,000 15,000 45,000 $63,000 Sales $ 200,000 500,000 700,000 $1,400,000 2019 2020 2021
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
During 2019, Lawton Company introduced a new line of machines that carry a 3-year assurance-type warranty against manufacturer’s defects. Based on industry experience, warranty costs are estimated at 2% of sales in the year of sale, 4% in the year after sale,and 6% in the second year after sale.
Sales and actual warranty expenditures for the first 3-year period were as follows:
What amount should Lawton report as a liability at December 31, 2021?
a. $0
b. $21,000
c. $84,000
d. $105,000
Transcribed Image Text:Actual Warranty
Expenditures
$ 3,000
15,000
45,000
$63,000
Sales
$ 200,000
500,000
700,000
$1,400,000
2019
2020
2021
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