Asked by Kimberly Prince on Apr 28, 2024
Verified
Refer to Exhibit 13-4.What amount should Alexandra report as its estimated warranty liability at December 31, 2010?
A) $ 0
B) $ 22, 000
C) $120, 000
D) $ 58, 000
Estimated Warranty Liability
A provision recognized in the financial statements for the expected cost of fulfilling product warranty promises.
Machine Sales
Transactions involving the selling of machinery, which can be a significant source of revenue and profit for manufacturing and equipment companies.
- Comprehend the methods of handling warranties in accounting under diverse methodologies.
Verified Answer
AK
Addison KelleyApr 30, 2024
Final Answer :
D
Explanation :
The estimated warranty liability at December 31, 2010, is calculated by taking the total estimated warranty costs for all machines sold ($2,000 per machine * 40 machines = $80,000) and subtracting the actual warranty expenditures for the year ($22,000). This results in an estimated warranty liability of $58,000 ($80,000 - $22,000).
Learning Objectives
- Comprehend the methods of handling warranties in accounting under diverse methodologies.