University Computers sells computers for $2,000 each and also gives each custome
ID: 2426945 • Letter: U
Question
University Computers sells computers for $2,000 each and also gives each customer a 2-year warranty that requires the company to perform periodic services and to replace defective parts. During 2004, the compay sold 700 computers. Based on past experience, the company has estimated the total 2-year warranty costs per computer as $40 for parts and $80 for labor (assume sales all occur at December 31, 2004). In 2005, UC incurred actual warranty costs relative to 2004 computer sales of $10,000 for parts and $24,000 for labor. Under the expense warranty treatment, (accrual method) what is the balance under current liabilities in the 2004 balance sheet?
a. $84,000
b. $24,000
c. $34,000
d. none of the above
Explanation / Answer
Warranty cost:
parts=(40*700)=$28,000
labour=(80*700)=$56,00
In current liabilities for the year edning 20014 will be 28000+56000=$84,000
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