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During 2020, Gold Flash Co. introduced a new product carrying a two-year warranty against defects. The estimated warranty costs related to dollar sales are 2%

During 2020, Gold Flash Co. introduced a new product carrying a two-year warranty against defects. The estimated warranty costs related to dollar sales are 2% within 12 months following sale and 4% in the second 12 months following sale. Sales and actual warranty expenditures for the years ended December 31, 2020 and 2021 are as follows:

  • 2020: Sales = $800,000; Actual Warranty Expenditures = $10,000
  • 2021: Sales = $1,000,000; Actual Warranty Expenditures = $30,000

At December 31, 2021, Gold Flash Co. should report an estimated warranty liability of:

A.

$25,000

B.

$35,000

C.

$61,000

D.

$68,000

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