- Consider the balance in the warranty and recall liability at Harley-Davidson for the most recent fiscal year, from the information above. Assume that in the next fiscal year, Harley-Davidson estimates a warranty liability of $70,000 on product sold and incurs a cost of $85,000 during the year to repair or replace defective products. (All $ in thousands for this Review.) Required a. What amount of warranty expense will Harley-Davidson report in its income statement next year? b. What will be the amount of warranty liability that Harley-Davidson reports on next year's balance sheet? c. Assume that Harley-Davidson mistakenly accrues $90,000 for warranty liability next year (instead of $70,000). What effect will this accrual mistake have on future income statements and balance sheets? Product Warranty-Estimated warranty costs are reserved for motorcycles, motorcycle parts and motorcycle accessories at the time of sale. The warranty reserve is based upon historical Company claim data used in combination with other known factors that may affect future warranty claims. The Company updates its warranty estimates quarterly to ensure that the warranty reserves are based on the most current information available... The Company maintains reserves for future warranty claims using an estimated cost, which are based primarily on historical Company claim information. Additionally, the Company has from time to time initiated certain voluntary recall cam- paigns. The Company reserves for all estimated costs associated with recalls in the period that management approves and commits to the recall. Changes in the Company's warranty and recall liability were as follows (in thousands): Harley-Davidson's warranty footnote Balance, beginning of period...... Warranties issued during the period. Settlements made during the period. Recalls and changes to pre-existing warranty liabilities... Balance, end of period..... *** 2015 2014 $69,250 $64,120 59,259 60,331 (96,529) (74,262) 42,237 19,061 $74,217 $69,250 2013 $60,263 59,022 (64,462) 9,297 $64,120