PROBLEM 3-17

Problem 3-17 (AICPA Adapted) In 2020, Dubious Company began selling new line of products that carry a two-year warranty against defects. Based upon past experience with other products, the entity estimated warranty costs as a percentage of peso sales. First year of warranty 2% Second year of warranty 5% Sales 2020 2021 5,000,000 7,000,000 Actual warranty cost 100,000 300,000 1 What is the warranty expense for 2020? a. 350,000 b. 100,000 c. 175,000 d. 150,000 2. What is the warranty liability on December 31, 2020? a. 150,000 b. 250,000 c. 125,000 d 0 3. What is the warranty expense for 2021? a. 300,000 b. 350,000 C. 490,000 d. 140,000 4. What is the warranty liability on December 31, 2021? a. 390,000 b. 440,000 c. 490,000 d. 840,000 92