Question - Belmont Inc. offers a two-year warranty against failure of its products. The estimated liability is 4% of sales in the year of sale and 6% in the second year. Sales for 2008 and 2009 were: $2,000,000 and $2,200,000, respectively. They incurred no warranty costs in 2008 but in 2009 they spent $125,000 on repairs related to the warranties from 2008 and 2009.
Please show steps. The warranty liability as at the year-end 2008 was:
a. $0
b. $80,000
c. $120,000
d. $200,000