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Blue Jay, Inc., manufactures and sells computer monitors with a three-year warranty.Warranty costs are expected to average 7% of sales during the warranty period. The followingtable shows the sales and actual warranty payments during the first two years of operations:Year Sales Warranty Payments2018 $650,000 $ 5,8502019 850,000 42,500Based on these facts, what amount of warranty liability should Blue Jay, Inc., report on itsbalance sheet at December 31, 2019?a. $48,350b. $56,650c. $105,000d. $42,500

Blue Jay, Inc., manufactures and sells computer monitors with a three-year warranty.Warranty costs are expected to average 7% of sales during the warranty period. The followingtable shows the sales and actual warranty payments during the first two years of operations:Year Sales Warranty Payments2018 $650,000 $ 5,8502019 850,000 42,500Based on these facts, what amount of warranty liability should Blue Jay, Inc., report on itsbalance sheet at December 31, 2019?a. $48,350b. $56,650c. $105,000d. $42,500

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Blue Jay, Inc., manufactures and sells computer monitors with a three-year warranty.
Warranty costs are expected to average 7% of sales during the warranty period. The following
table shows the sales and actual warranty payments during the first two years of operations:
Year Sales Warranty Payments
2018 $650,000 $ 5,850
2019 850,000 42,500
Based on these facts, what amount of warranty liability should Blue Jay, Inc., report on its
balance sheet at December 31, 2019?
a. $48,350
b. $56,650
c. $105,000
d. $42,500

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