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    Amount of warranty liability

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    Please help with the following problem.

    During 2006, Venable Co. 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:
    Sales Actual Warranty Expenditures
    2006 $ 400,000 $ 6,000
    2007 1,000,000 30,000
    2008 1,400,000 90,000
    $2,800,000 $126,000

    What amount should Venable report as a liability at December 31, 2008?

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    https://brainmass.com/business/accounting-for-liabilities/amount-warranty-liability-206791

    Solution Preview

    Problem: During 2006, Venable Co. 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 ...

    Solution Summary

    The solution explains how to determine the amount of warranty liability at the year end based on accounting problems. Step by step calculations are provided in the answer.

    $2.19

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