During 2019, Lawton Company introduced a new line of machines thatcarry a 3-year assurance-type warranty against manufacturer's defects.Based on industry experience, warranty costs are estimated at 2% ofsales in the year of sale, 4% in the year after sale, and 6% in the secondyear after sale. Sales and actual warranty expenditures for the first 3-year period wereas follows: Sales Actual WarrantyExpenditures 201920202021 $ 200,000500,000700,000 $ 3,00015,00045,000 $1,400,000 $63,000 What amount should Lawton report as a liability at December 31, 2021?a. $0b. $21,000C. $84,000d. $105,000
During 2019, Lawton Company introduced a new line of machines thatcarry a 3-year assurance-type warranty against manufacturer's defects.Based on industry experience, warranty costs are estimated at 2% ofsales in the year of sale, 4% in the year after sale, and 6% in the secondyear after sale. Sales and actual warranty expenditures for the first 3-year period wereas follows: Sales Actual WarrantyExpenditures 201920202021 $ 200,000500,000700,000 $ 3,00015,00045,000 $1,400,000 $63,000 What amount should Lawton report as a liability at December 31, 2021?a. $0b. $21,000C. $84,000d. $105,000
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:
| Sales | Actual Warranty Expenditures |
|
| 2019 2020 2021 |
$ 200,000 500,000 700,000 |
$ 3,000 15,000 45,000 |
| $1,400,000 | $63,000 |
What amount should Lawton report as a liability at December 31, 2021?
a. $0
b. $21,000
C. $84,000
d. $105,000
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