Peter Inc. manufactures and sells computer monitors with a three-year warranty. Warranty costs are expected to average 8% 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 2016 $560,000 $6,160 2017 760,000 32,000 Based on these facts, what amount of warranty liability should Peter Inc. report on its balance sheet at December 31, 2017? a) $38,160 b) $67,440 c) $105,600 d) $32,000
Peter Inc. manufactures and sells computer monitors with a three-year warranty. Warranty costs are expected to average 8% 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 2016 $560,000 $6,160 2017 760,000 32,000 Based on these facts, what amount of warranty liability should Peter Inc. report on its balance sheet at December 31, 2017? a) $38,160 b) $67,440 c) $105,600 d) $32,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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1. Peter Inc. manufactures and sells computer monitors with a three-year warranty. Warranty costs are expected to average 8% 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 |
| 2016 | $560,000 | $6,160 |
| 2017 | 760,000 | 32,000 |
Based on these facts, what amount of warranty liability should Peter Inc. report on its
a) $38,160
b) $67,440
c) $105,600
d) $32,000
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