Multiple Choice
4. As of December 31, what does the balance of the Estimated Warranty Liability account represent?
9. Current Liabilities
Estimated Liabilities: Warranties
Struggling with Financial Accounting?
Join thousands of students who trust us to help them ace their exams!Watch the first videoMultiple Choice
The American Tire Company provides a warranty for its tire sales that cover manufacturing defects for three years or 50,000 miles, whichever comes first. ATC estimates that warranty costs during the warranty period will equal 5% of sales. During the current year, ATC made sales of $337,000. ATC received cash equal to 35% of sales and accounts receivable for the remainder. Payments to satisfy warranty claims during the year totaled $9,700. If the beginning balance in estimated warranty payable was $7,000, what would be the final balance in the estimated warranty payable?
A
$5,898
B
$9,700
C
$14,150
D
$16,700
E
$16,850
Verified step by step guidance1
Calculate the estimated warranty expense for the current year by multiplying the total sales by the estimated warranty cost percentage: $337,000 * 5%.
Determine the total warranty liability by adding the beginning balance of the estimated warranty payable to the estimated warranty expense calculated in the previous step.
Subtract the actual payments made to satisfy warranty claims during the year from the total warranty liability to find the ending balance in the estimated warranty payable.
Review the calculation to ensure all components (beginning balance, estimated expense, and actual payments) are correctly accounted for in determining the final balance.
Compare the calculated ending balance with the provided options to verify the correct answer.
Related Videos
Related Practice
Estimated Liabilities: Warranties practice set
Problem sets built by lead tutorsExpert video explanations