Question

Orion Company had a proper balance of $3,450 in its estimated Warranty Liability account on January 1, Year 4. 1. The firm's product sales in Year 4 were $14,000. The firm's sales always occur evenly throughout the year and the products have a four-year warranty period starting on the date of sale The firm's management has estimated that the warranty spending as a percentage of sales revenues will be 2% in the first year and increase by 1% for each of the next three years in the warranty period. Expenditures related to warranty costs were $1,140 in Year 4. [First year: 2%, second year 3%, third year 4% and fourth year 5%.] Product sales and related warranty expenditures in Year 5 were $15,000 and $1,300, respectively. The management of the firm did not change its estimates of warranty costs for the three-year warranty period REQUIRED: Determine the $ $ Warranty Expense for Year 4 Estimated Warranty Liability at Dec. 31, Year 4 Warranty Expense for Year 5 _Estimated Warranty Liability at Dec. 31, Year 5 $

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Answer 1

This Question very Easy. Management Estimates of Warranty expenditure based on sales revenue is given and we have calculate 4th and 5th year expenditure. Please refer the solution provided. For any Queries please comment

Management Estimates of Warranty Warranty Spending Year Wise 2% of Sales Revenue 2 3% of Sales Revenue 4% of Sales Revenue 4 4 5% of Sales Revenue $ 1,140 Expenditure Year 4 Sales Sales in Year 5 Expenditure $ 14,000 $ 15,000 $ 1,300 a) Actual Warranty Exp. $ 1,140 b) Estimated Warranty Expense for Year 4 $14000 * 5% $ 700 a) Actual Warranty Exp. $ 1,300 b) Estimated Warranty Expense for Year 5 $15000 * (5+1)% $ 900