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Amount of warranty liability

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During 2006, Venable Co. 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 2% of sales in the year of sale, 4% in the year after sale, and 6% in the second year after sale. Sales and actual warranty expenditures for the first three-year period were as follows:
Sales Actual Warranty Expenditures
2006 $ 400,000 $ 6,000
2007 1,000,000 30,000
2008 1,400,000 90,000
$2,800,000 $126,000

What amount should Venable report as a liability at December 31, 2008?

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The solution explains how to determine the amount of warranty liability at the year end based on accounting problems. Step by step calculations are provided in the answer.

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Problem: During 2006, Venable Co. 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 2% of sales in the year of ...

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