Broward Company estimated its warranty obligations to customers at $6,250 for the current year. During the year, Broward paid $3,920 to settle warranty claims made by customers.Required:a) What is the amount of warranty expense for the current year?b) If this is the first year of operations, what is the amount of warranty liability that will be shown on the balance sheet at the end of the year?
What will be an ideal response?
a) $6,250
The recognition of warranty obligations to customers who purchased the merchandise during the year increases warranty expense (with an increase to warranties payable) for $6,250, which is the amount of the estimate of the warranty obligation.
b) $2,330
Ending balance of warranties payable = Beginning balance of warranties payable + Warranty expense ? Warranty claims paid
Ending balance of warranties payable = $0 (since this is the first year of operations) + $6,250 ? $3,920 = $2,330
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