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Monty Corporation manufactures a line of amplifiers that carry a three-year warranty against defects. Based on experience, the estimated warranty costs related to dollar sales are as follows: first year after sale—1% of sales; second year after sale—2% of sales; and third year after sale—3% of sales. Sales and actual warranty expenditures for the first three years of business were:
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Calculate the amount that Monty Ltd. should report as warranty expense on its 2017 income statement and as a warranty liability on its December 31, 2017 statement of financial position using the assurance-type warranty (expense-based approach). Assume that all sales are made evenly throughout each year and that warranty expenditures are also evenly spaced according to the rates above.
A) Warranty Expense
B) Warranty Lability
Expert Answer
