Dannys Lawn Equipment sells high-quality lawn mowers and offers a 3-year warranty on all new lawn mowers sold. In 2017, Danny sold $300,000 of new specialty mowers for golf greens for which Dannys service department does not have the equipment to do the service. Danny has entered into an agreement with Mower Mavens to provide all warranty service on the special mowers sold in 2017. Danny wishes to measure the fair value of the agreement to determine the warranty liability for sales made in 2017. The controller for Dannys Lawn Equipment estimates the following expected warranty cash outflows associated with the mowers sold in 2017.

Year Cash Flow Estimate Probability Assessment

2018 $2500 20%

4000 60%

5000 20%

2019 $3000 30%

5000 50%

6000 20%

2020 $4000 30%

6000 40%

7000 30%

Using expected cash flow and present value techniques, determine the value of the warranty liability for the 2017 sales. Use an annual discount rate of 5%. Assume all cash flows occur at the end of the year.