During 2014, the company introduced a new product that provides a guarantee for two years in the event of damage. The estimated warranty cost based on sales value is 2% for 12 months and 4% for the following 12 months. Actual sales values and warranty issues for the years ended December 31, 2014 and 2015 are as follows: Sales Guarantee expenditure Actual 2014 $ 800,000 $ 12,000 2015 $ 1,000,000 $ 30,000 Total $ 1,800,000 $ 42,000 As of December 31, 2015, the company must present an estimated warranty obligation of a. $0 b. $10,000 c. $26,000 d. $52,000
During 2014, the company introduced a new product that provides a guarantee for two years in the event of damage. The estimated warranty cost based on sales value is 2% for 12 months and 4% for the following 12 months. Actual sales values and warranty issues for the years ended December 31, 2014 and 2015 are as follows: Sales Guarantee expenditure Actual 2014 $ 800,000 $ 12,000 2015 $ 1,000,000 $ 30,000 Total $ 1,800,000 $ 42,000 As of December 31, 2015, the company must present an estimated warranty obligation of a. $0 b. $10,000 c. $26,000 d. $52,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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During 2014, the company introduced a new product that provides a guarantee for two years in the event of damage. The estimated warranty cost based on sales value is 2% for 12 months and 4% for the following 12 months. Actual sales values and warranty issues for the years ended December 31, 2014 and 2015 are as follows:
| Sales | Guarantee expenditure Actual | |
| 2014 | $ 800,000 | $ 12,000 |
| 2015 | $ 1,000,000 | $ 30,000 |
| Total | $ 1,800,000 | $ 42,000 |
As of December 31, 2015, the company must present an estimated warranty obligation of
a. $0
b. $10,000
c. $26,000
d. $52,000
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