Adrian Inc. manufactures and sells computer monitors with a three-year warranty. Warranty costs are expected to average \(8 \%\) of sales during the warranty period. The following table shows the sales and actual warranty payments during the first two years of operations:

Based on these facts, what amount of warranty liability should Adrian Inc. report on its balance sheet at December 31, 2020?

a. \(\$ 32,000\)

b. \(\$ 36,000\)

c. \(\$ 60,000\)

d. \(\$ 96,000\)

Transcribed Image Text:

Year Sales 2019 2020 700,000 $500,000 Warranty Payments $ 4,000 32,000