During 2024, Foxfire Company introduced a new line of machines that carry a three-year warranty against defects. Based on 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 were P1,200,000, P3,000,000 and P4,200,000 for 2024, 2025, and 2026, respectively. Actual warranty expenditures were P18,000, P90,000 and P270,000 for 2024, 2025 and 2026, respectively. What amount should be reported as warranty liability on December 31, 2026?
During 2024, Foxfire Company introduced a new line of machines that carry a three-year warranty against defects. Based on 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 were P1,200,000, P3,000,000 and P4,200,000 for 2024, 2025, and 2026, respectively. Actual warranty expenditures were P18,000, P90,000 and P270,000 for 2024, 2025 and 2026, respectively. What amount should be reported as warranty liability on December 31, 2026?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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During 2024, Foxfire Company introduced a new line of machines that carry a three-year warranty against defects. Based on 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 were P1,200,000, P3,000,000 and P4,200,000 for 2024, 2025, and 2026, respectively. Actual warranty expenditures were P18,000, P90,000 and P270,000 for 2024, 2025 and 2026, respectively. What amount should be reported as warranty liability on December 31, 2026?
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