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During 2001 Davidson Company introduced a new line of machines that carry a three-year warranty against manufacturer's defects. Based in industry experience, warranty cost are estimated at 2% of sales in the year of sale and 6% in the second year after the sale. Sales and actual warranty expenditures for the first three-year period were as follows:

Year Sales Actual Warranty Expenditures
2001 $ 200,000 $ 3,000
2002 500,000 15,000
2003 700,000 45,000
$1,400,000 $ 63,000

What amount should Davidson report as a liability at December 31, 2003?

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M9974121

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