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During 2021, JJJ Co. introduced a new line of machines that carry a three-year warranty against manufacturer’s defects. Based on industry experience, warranty costs are estimated at 2% of sales in the year of sale, 3% in the year after sale, and 4% in the second year after sale. Sales and actual warranty expenditures for the first three-year period were as follows: Sales / Actual Warranty / Expenditures 2021 / 600,000 / 9,000 2022 / 1,500,000 / 65,000 2023 / 2,100,000 / 135,000 What amount should JJJ report as a liability at December 31, 2023?

During 2021, JJJ Co. introduced a new line of machines that carry a three-year warranty against manufacturer’s defects. Based on industry experience, warranty costs are estimated at 2% of sales in the year of sale, 3% in the year after sale, and 4% in the second year after sale. Sales and actual warranty expenditures for the first three-year period were as follows: Sales / Actual Warranty / Expenditures 2021 / 600,000 / 9,000 2022 / 1,500,000 / 65,000 2023 / 2,100,000 / 135,000 What amount should JJJ report as a liability at December 31, 2023?

Intermediate Accounting: Reporting And Analysis
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter22: Accounting For Changes And Errors.
Section: Chapter Questions
Problem 10E
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During 2021, JJJ Co. introduced a new line of machines that carry a three-year warranty against manufacturer’s defects. Based on industry experience, warranty costs are estimated at 2% of sales in the year of sale, 3% in the year after sale, and 4% in the second year after sale. Sales and actual warranty expenditures for the first three-year period were as follows:

Sales / Actual Warranty / Expenditures
2021 / 600,000 / 9,000
2022 / 1,500,000 / 65,000
2023 / 2,100,000 / 135,000

What amount should JJJ report as a liability at December 31, 2023?

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