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Sales and actual warranty expenditures

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Reference no: EM13120974

During 2010, General Machinery company introduced a new line of machines that carry a three-year warranty against manufacturer's defects. Based on industry experience, warranty costs are estimated at 2% of sales in the year of sale, 4% in the year after sale, and 6% in the second year after sale. Sales and actual warranty expenditures for the first three-year period were as follows:

Year 2010: $225,000 Sales, and $3,375 actual warranty expenditure

Year 2011: $562,500 sales, and $16,875 actual warranty expenditure

Year 2012: $787,500 sales, and $50,625 actual warranty expenditure

Total sales = $ 1,575,000

Total actual warranty expenditure = $ 70,875

What amount should General Machinery report as a liability at December 31,2012?

a. $0

b. $5,626

c. $76,500

d. $118,125

Reference no: EM13120974

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