Question

Lindy Appliance begins operations in 2021 and offers a one-year warranty on all products sold. Total appliance sales in 2021 are $1,600,000, and Lindy estimates future warranty costs in 2022 to be 2% of current sales. Actual warranty costs in 2022 are $25,000. Also in 2022, Lindy has additional sales of $2,400,000 and revises its estimate of warranty costs associated with sales in 2022 to be 1.5%. 4. What is the balance in Warranty Liability at the end of 2021 and 2022? 2021 2022 Warranty Liability

Answer 1

Year 2021 is $32,000, Year 2022 is $36,000

Answer 2

Working Notes:
	CALCULATION OF THE ESTIMATED WARRANTY EXPENSES FOR THE YEAR 2021 & 2022
	Sales of the year 2021	$            16,00,000
	Estimated warranty Liability= 2% of $ 1,600,000	$                  32,000
	Estimated Warranty Liability of the year 2021	$                  32,000
	Sales of the year 2022	$            24,00,000
	Estimated warranty Liability= 1.5% of $ 2,400,000	$                  36,000
	Estimated Warranty Liability of the year 2022	$                  36,000
SOLUTION:
	Calculation of Estimated Warranty Liability for the year 2021
	Estimated Warranty Liability of the year 2021	$                  32,000
	There is no actual warranty expenses in the year 2021 so estimated
	warranty liability will remain the same of $ 32,000
	Calculation of Estimated Warranty Liability for the year 2022
	Beginning balance of Estimated warranty Liability =	$                  32,000
	Add: Estimated Warranty Liability of the yewar 2022 =	$                  36,000
	Total	$                  68,000
	Less: Actual Warranty Expenditure for the year 2022=	$                  25,000
	Balance in Estimated Warranty Liability	$                  43,000
	Answer =
		2021	2022
	Warranty Liability	$                  32,000	$                     43,000