Question

intermediate financial accounting 2

BACK NEXT Exercise 13-20 Sheffield Corporation manufactures a line of amplifiers that carry a three-year warranty against defects. Based on experience, the estimated warranty costs related to dollar sales are as follows: first year after sale-196 of sales; second year after sale-2% of sales and third year after sale-3% of sales. Sales and actual warranty expenditures for the first three years of business were: 2018 2019 2020 Sales $800,000 1,070,000 1,025,000 Warranty Expenditures $16,400 47,000 83,000 (a) Calculate the amount that Sheffield Ltd. should report as warranty expense on its 2020 income statement and as a warranty liability on its December 31, 2020 SFP using the assurance-type warranty (expense-based approach). Assume that all sales are made evenly throughout each year and that warranty expenditures are also evenly spaced according to the rates above Warranty expense s! Warranty liability s

Answer 1

Answer

here Total sales = 800000+1070000+1025000 = 2895000

estimated warranty costs related to dollar sales = 1%+2%+3% = 6%

hence warranty cost = 6% of 2895000 = $ 173700

less -actual warranty expenditure =     (146400) = $ 27300 (warranty laiblity)

(16400+47000+83000)

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