Reference no: EM132636344

During 2004, Alton Co. introduced a new product carrying a two-year warranty against defects. The estimated warranty costs related to sales are 4% within 12 months following sale and 8% in the second 12 months following sale. Sales and actual warranty expenditures for the years ended December 31, 2004 and 2005 are as follows:

                   Actual Warranty              Sales Expenditures

2004                 P 800,000                          P24,000

2005                    1,000,000                         60,000

                            P1,800,000                      P84,000

Problem 1. At December 31, 2005, Alton should report an estimated warranty liability of

a. P28,000.

b. P36,000.

c. P60,000.

d. P132,000.