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ABC Corporation sells widgets. Each widget carries a multi-year warranty. ABC estimates the cost of warranty work to be 5% of current sales. Sales in
ABC Corporation sells widgets. Each widget carries a multi-year warranty. ABC estimates the cost of warranty work to be 5% of current sales. Sales in Year 2 were $500,000 and $20,000 was spent on warranty work during Year 2. The balance in Estimated Warranty Liability at December 31 of Year 1 was $50,000. What is the balance in the Warranty Expense account for Year 2 and what is the balance in the Estimated Warranty Liability account at December 31 of Year 2, respectively?
a. 5000; 25000
b.25000; 20000
c.25000; 55000
d.55000; 20000
e. 55000; 25000
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