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Gonzales Co. provides warranties for many of its products. Its estimated warranty liability account had a...

Gonzales Co. provides warranties for many of its products. Its estimated warranty liability account had a balance of $164,800 at January 1, 2017. Based on an analysis of warranty claims during the past several years, the warranty expense for 2017 was established at 0.4 percent of sales. During 2017, the actual cost of servicing products under warranty was $68,400, and sales were $16,400,000.
Required:
1.

Compute the warranty expense that should appear on the company’s statement of earnings for the year ended December 31, 2017.

     

2.

What amount will be reported in the estimated warranty liability account on the statement of financial position as at December 31, 2017?

     

business   accounting   
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Answer #1

Warranty expense that should appear

= Sales * 0.4%

= 16,400,000 * 0.4%

= 65,600

Amount to be reported in estimated warranty liability account

= beg bal 164,800 + 65,600 - 68,400

= 162,000

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