Question

Sony introduces a new compact music player to compete with Apple's iPod that carries a two-year warranty against manufacturer's defects. Based on industry experience with similar product introductions, warranty costs are expected to be approximately 3% of sales. By the end of the first year of selling the product, total sales are $29.7 million, and actual warranty expenditures are $170,000. What amount (if any) should Sony report as a liability at the end of the year? (Enter your answer in dollars, not millions. For example, $5.5 million should be entered as 5,500,000.) Warranty liability

Answer 1

Answer: Total Sales Expected Warranty Costs ( $ 29.7 million * 3%) $ $ 2,97,00,000 8,91,000 Entry to Record Waranty Liaility Waranty Expenses Dr Waranty Liability Cr $ 8,91,000 $ 8,91,000 $ 1,70,000 Actual Waranty Expenses Entry to record Actual Waranty expenses Waranty Liability Dr Spares Parts Inventory Inventory Cr $ 1,70,000 $ 1,70,000 Sony Should report $ 721000 ($ 891000 - $ 170000) as a Liaility at the end the Year Warranty Liaility = $ 721000