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12 June, 00:04

Talks-A-Lot, Inc. sells cell phones to customers and expects that 5% of phones sold will be returned for repair under its warranty program. The average repair cost is $76 per phone. For 2021, Talks-A-Lot has sold 680 cell phones and has repaired 6 of them as of December 31, 2021. What amount of warranty liability should be reported at December 31, 2021?

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  1. 12 June, 00:07
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    Warranty liability $2,128

    Explanation:

    680 phones sold x 5% x $76 per repaired phone = $2,584 total warranty liability

    6 phones were repaired during the year x $76 = $456

    remaining warranty liability = total estimated liability - money spent repairing phones during the year = $2,584 - $456 = $2,128

    total outstanding warranty liability = $2,128

    Since phone warranties last less than a year, the full amount should be recorded under current liabilities.
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