Use the following information for questions below
Radio Hut Inc.offers a two-year assurance warranty against failure of its products.The estimated liability is 1.5% in the year of sale and 3% in the second year.Sales and actual warranty expense for 2020 and 2021 were:
$$\begin{array} { l c c }
& \text { Sales } & \text { Actual Warranty Costs Incurred During Year } \
2020 & \$ 3,500,000 & \$ 110,000 \
2021 & \$ 3,900,000 & \$ 195,000
\end{array}$$
-The warranty provision on the December 31,2020 statement of financial position sheet was
A)$47,500.
B)$105,000.
C)$110,000.
D)$157,500.

Question

Use the following information for questions below
Radio Hut Inc.offers a two-year assurance warranty against failure of its products.The estimated liability is 1.5% in the year of sale and 3% in the second year.Sales and actual warranty expense for 2020 and 2021 were:
$$\begin{array} { l c c } 
& \text { Sales } & \text { Actual Warranty Costs Incurred During Year } \
2020 & \$ 3,500,000 & \$ 110,000 \
2021 & \$ 3,900,000 & \$ 195,000
\end{array}$$
-The warranty provision on the December 31,2020 statement of financial position sheet was
A)$47,500.
B)$105,000.
C)$110,000.
D)$157,500.

Quizplus · Accepted Answer

The warranty provision on the December 31, 2020 statement of financial position sheet was $47,500. This is calculated as follows:Warranty provision = (Sales x Estimated liability rate) - Actual warranty costs incurred during the yearWarranty provision = ($3,500,000 x 1.5%) - $110,000Warranty provision = $47,500

Use the Following Information for Questions Below Radio Hut Inc

Use the Following Information for Questions Below
Radio Hut Inc