Cornerstone Exercise 832 Algorithmic Warranties In 2019 Jamm

Cornerstone Exercise 8-32 (Algorithmic) Warranties In 2019, Jammer Jumps sold 100 bounce houses at $4,300 each. The bounce houses carry a 5-year warranty for defects. Jammer estimates that repair costs will average 4% of the total selling price. The estimated warranty liability at the beginning of the year was $42,000. Claims of $11,000 were actually incurred during the year to honor their warranties. Required What was the balance in the warranty liability account at the end of the year?

Solution

Calculate warranty liability account at the end of the year :

Ending warranty liability account = 42000+(4300*100*4%)-11000 = 48200

Warranty liability account at the end of the year $48200