Reference no: EM131633973

Problem - During 2016, Rao Co. introduced a new line of machines that carry a three-year warranty against manufacturerâs defects. Based on industry experience, warranty costs are estimated at 2% of sales in the year of sale, 3% in the year after sale, and 4% in the second year after sale. Sales and actual warranty expenditures for the first three-year period were as follows: (assume the accrual method)

                         Sales        Actual Warranty Expenditures

2016         $  1,600,000                           $   39,000

2017              2,500,000                                 65,000

2018             2,100,000                              135,000

                    $6,200,000                             $239,000

What amount should Rao report as a liability at December 31, 2018?

a.  $0

b.  $71,000

c.  $84,000

d.  $319,000