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Martinez Corporation manufactures a line of amplifiers that carry a three-year warranty against defects. Based on experience, the estimated warranty costs related to dollar sales
Martinez Corporation manufactures a line of amplifiers that carry a three-year warranty against defects. Based on experience, the estimated warranty costs related to dollar sales are as follows: first year after sale-2% of sales: second year after sale-3% of sales; and third year after sale-4% of sales. Sales and actual warranty expenditures for the first three years of business were: 2018 2019 2020 Sales $790,000 1.040,000 1.001,000 Warranty Expenditures $16,300 46,800 81,500 (a) Calculate the amount that Martinez Ltd should report as warranty expense on its 2020 income statement and as a warranty liability on its December 31, 2020 SFP using the assurance-type warranty (expense-based approach). Assume that all sales are made evenly throughout each year and that warranty expenditures are also evenly spaced according to the rates above. Warranty expense $ 144600 $ $ Warranty liability 110190
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