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During 2020, AAA introduced a new line of machines that carry a three-year warranty against manufacturer's defects. Based on industry experience, warranty costs are estimated
During 2020, AAA introduced a new line of machines that carry a three-year warranty against
manufacturer's defects. Based on industry experience, warranty costs are estimated at 1% of sales
in the year of sale, 2% in the year after sale, and 3% in the second year after sale. Sales and actual
warranty expenditures for the first three-year period were as follows:
Sales Actual Warranty Expenditures
2020 $ 1,400,000 $ 26,000
2021 1,000,000 40,000
2022 1,400,000 90,000
$3,800,000 $156,000
What amount should AAA report as a liability at December 31, 2021?
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