Question

During 2012 Eaton Co. Introduced a new product carrying a two year warranty against defects. The estimated warranty costs related to dollar sales are 2% within 12 months following sale and 3% in the second 12 months following sale. Sales and actual warranty expenditures for the years ended December 31, 2012 and 2013 are as follows: - - total sales - $1,800,000- actual Warranty Expenditures - $47,000At December 31, 2013, Eaton should report and estimated warranty liability of...

Answer 1

Answer:

$43,000

Explanation:

The computation of the estimated warranty liability is shown below:

= Total sales × total sales percentage given - actual Warranty Expenditures

= $1,800,000 × 5% - $47,000

= $90,000 - $47,000

= $43,000

The total sales percentage given is shown below:

= Within 12 months following sale percentage + second 12 months following sale percentage

= 2% + 3%

= 5%