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2 January, 08:08

Talks-A-Lot, Inc. sells cell phones to customers and expects that 10% of phones sold will be returned for repair under its warranty program. The average repair cost is $75 per phone. For 2021, Talks-A-Lot has sold 750 cell phones and has repaired 30 of them as of December 31, 2021. What amount of warranty liability should be reported at December 31, 2021?

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  1. 2 January, 08:26
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    amount of warranty liability that should be reported at December 31, 2021 is $3,375

    Explanation:

    When the Sale was made, the Warrant Liability is recorded as follows:

    Warranty Cost $5,625 (Debit)

    Warranty Provision $5,625 (Credit)

    Warranty Cost = 750 cell phones * $75 * 10% = $5,625

    When Warranty Claims were received during the year the records are as follows:

    Warranty Provision $2,250 (Debit)

    Cash $2,250 (Debit)

    Warranty Cost = 30 * $75 = $2,250

    At December 31, 2021 the amount of warranty liability should be

    Warranty Provision = $5,625 - $2,250 = $3,375
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