In 2016, General Dynamics Corporation began selling a new line of products that carries a two-year warranty against defects. Based upon past experience with other products, the estimated warranty costs related to dollar sales are as follows:

First-year of warranty 2%

Second-year of warranty 5%

Sales and actual warranty expenditures for 2016 and 2017 are presented below:

2016 2017

Sales $600,000 $800,000

Actual warranty expenditures $20,000 $40,000

What is the estimated warranty liability at the end of 2017 in $?

A. 20,000

B. 64,000

C. 38,000

D. 96,000

Question

Esteban

Business

26 November, 21:38

In 2016, General Dynamics Corporation began selling a new line of products that carries a two-year warranty against defects. Based upon past experience with other products, the estimated warranty costs related to dollar sales are as follows:

First-year of warranty 2%

Second-year of warranty 5%

Sales and actual warranty expenditures for 2016 and 2017 are presented below:

2016 2017

Sales $600,000 $800,000

Actual warranty expenditures $20,000 $40,000

What is the estimated warranty liability at the end of 2017 in $?

A. 20,000

B. 64,000

C. 38,000

D. 96,000

+5

Answers (1)

Know the Answer?

Kassidy Conway · Answer 1

C) 38,000

Explanation:

The estimated warranty liability for 2017:

= [2016 sales x (first + second year warranty costs) ] + [2017 sales x (first + second year warranty costs) ] - (warranty expenses for 2016 and 2017)

= [$600,000 x (2% + 5%) ] + [$800,000 x (2% + 5%) ] - ($20,000 + $40,000)

= $42,000 + $56,000 - $60,000 = $38,000