Excom manufactures high end whole home electronic systems. The company provides

Question

Excom manufactures high end whole home electronic systems. The company provides a one-year warranty for all products sold. The company estimates that the warranty cost is $225 per unit sold and reported a liability for estimated warranty costs $7.8 million at the beginning of this year. If during the current year, the company sold 60,000 units for a total of $243 million and paid warranty claims of $9,000,000 on current and prior year sales, what amount of liability would the company report on its balance sheet at the end of the current year? (assume accrual method)................. $13,500,000.... $12,300,000.... $2,800,000.... or $4,500,000

Explanation / Answer

The correct answer is $ 12,300,000

Workings:

Contingent liabilities $ Beginning balance 7,800,000 Warranty liabilities accrued during the year (60,000 x 225) 13,500,000 Less contingencies crystallized during the year 9,000,000 Ending balance 12,300,000

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