What is the correct balance of the estimated liability for production warranty at the end of 2020? PROBLEM 3: Rado Inc. a manufacturer of heavy machinery, grants 2-year warranty on itsproducts. The estimated Liability for product warranty account shows the following entries forthe year:Beginning balanceProvisions during the year (quarterly accrual)TotalP225,000200,000P425,000A review of the company's policy of accounting for warranties revealed that based on thecompany's past experience, warrant claims averaged 5% on net sales, Moreover the companyprovides for a quarterly accrual of the estimated warranties expenditure based on roughestimates.The following additional information is available from the company's records:Gross SalesP7,250,000150,0006,378,000Sales returns and AllowancesCost of salesThe cost of sales included P415,000 cost of servicing warranty claims for the year.

Warranty can be defined as contract between two parties- the buyer and the seller which arises out…

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What is the correct balance of the estimated liability for production warranty at the end of 2020?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

What is the correct balance of the estimated liability for production warranty at the end of 2020?

PROBLEM 3: Rado Inc. a manufacturer of heavy machinery, grants 2-year warranty on its
products. The estimated Liability for product warranty account shows the following entries for
the year:
Beginning balance
Provisions during the year (quarterly accrual)
Total
P225,000
200,000
P425,000
A review of the company's policy of accounting for warranties revealed that based on the
company's past experience, warrant claims averaged 5% on net sales, Moreover the company
provides for a quarterly accrual of the estimated warranties expenditure based on rough
estimates.
The following additional information is available from the company's records:
Gross Sales
P7,250,000
150,000
6,378,000
Sales returns and Allowances
Cost of sales
The cost of sales included P415,000 cost of servicing warranty claims for the year.

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