Lovely A.

Cabug-os BSA-2A
Assignment # 7
In 2020, the Dubious Company began selling new line of products that car
a two-year warranty against defects.

Based upon past experience with other products, the entity estimated warr
costs as a percentage of peso sales.

First year of warranty

Second year of warranty

Sales
Actual warranty costs

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
selling new line of products that carry

products, the entity estimated warranty

2%
5%
2020 2021
5,000,000 7,000,000
100,000 300,000

Solution:
5,000,000.00
x 7%
350,000.00

mber 31, 2020?

Solution:
350,000.00
Less 100,000.00
250,000.00

Solution:
7,000,000.00
x 7%
490,000.00

mber 31, 2021?

Solution:
490,000.00
Less 300,000.00
190,000.00
Add 250,000.00
440,000.00