Practice Question During year 1, Gum Co. introduced a new product carrying a two-year warranty against defects. The estimated warranty costs related to sales are 2% within twelve months following the sale and 4% in the second twelve months following the sale. Sales and actual warranty expenditures for the years ended December 31, year 1 and year 2, are as follows: Actual warranty expenditures $2,250 7,500 $9,750 AICPA.920535FAR Sales $150,000 250,000 $400,000 What amount should Gum report as estimated warranty liability in its December 31, year 2 balance sheet? Year 1 Year 2
Practice Question During year 1, Gum Co. introduced a new product carrying a two-year warranty against defects. The estimated warranty costs related to sales are 2% within twelve months following the sale and 4% in the second twelve months following the sale. Sales and actual warranty expenditures for the years ended December 31, year 1 and year 2, are as follows: Actual warranty expenditures $2,250 7,500 $9,750 AICPA.920535FAR Sales $150,000 250,000 $400,000 What amount should Gum report as estimated warranty liability in its December 31, year 2 balance sheet? Year 1 Year 2
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Practice Question
During year 1, Gum Co. introduced a new product carrying a two-year warranty against
defects. The estimated warranty costs related to sales are 2% within twelve months following
the sale and 4% in the second twelve months following the sale. Sales and actual warranty
expenditures for the years ended December 31, year 1 and year 2, are as follows:
Actual warranty
expenditures
$2,250
7,500
$9,750
Year 1
Year 2
Sales
$150,000
250,000
$400,000
AICPA.920535FAR
What amount should Gum report as estimated warranty liability in its December 31, year 2
balance sheet?
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Follow-up Question
Warranty Expense for Year 1 Sale {$150,000 x (2% + 4%)}
why the rate is 2%+4%?
it said that first year warranty rate is only 2%, second year is 4% of the sale
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