Question

Carpenter Inc. had a balance of $95,000 in its quality-assurance warranty liability account as of December...

Carpenter Inc. had a balance of $95,000 in its quality-assurance warranty liability account as of December 31, 2020. In 2021, Carpenter's warranty expenditures paid were $460,000. Its warranty expense is calculated as 1% of sales. Sales in 2021 were $41.5 million. What was the balance in the warranty liability account as of December 31, 2021?

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Answer #1

Answer : $50,000

Explanation

The Warranty liability of Carpenter Inc as at December 31, 2021 shall be determined through following mentioned equation:

Closing Warranty liability=opening warranty liability+warranty expense for the year-warranty expenditure paid during the year

In the given question:

opening warranty liability=$95,000

warranty expense for the year=1%*$41,500,000=$415,000

warranty expenditure paid during the year=$460,000

Closing Warranty liability=$95,000+$415,000-$460,000=$50,000

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