Reference no: EM132428869

Question - For the question, why the estimated warranty costs are calculated by multiplying the sales revenue by 0.1?

"Schmitt Company must make computations and adjusting entries for the following independent situations at December 31, 2011.

1) Its line of amplifiers carries a 3-year warranty against defects. On the basis experience the estimated warranty costs related to dollar sales are: first year after sale - 2% of sales: second year after sale after sales - 3% of sales; and third year after sale-5% of sales. Sales and actual warranty expenditures for the first 3 years of business were:

Sales Warranty Expenditures

2009 800,000 6,500

2010 1,100,000 17,200

2011 1,200,000 62,000

Instructions - Compute the amount that Schmitt Company should report as a liability in its December 31,2011, balance sheet. Assume that all sales are made evenly throughout each year with warranty expenses also evenly spaced relative to the rates above.