Its line of amplifiers carries a 3 year warranty against defects. On the basis of past experience the estimated warranty costs related to dollar sales are: first year after sale-2% of sales; second year after sale-3% of sales; and third year after sale-5% of sales. Sales and actual warranty expenditures for the first 3 years of business were:
sales warranty expenditures
2009 $800,000 $6500
2010 $1,100,000 $17200
2011 $1,200,000 $62,000
Instructions
Compute the amount that Schmitt Company should report as a liabilit in its December 31, 2011, balance sheet. Assume all sales are made evenly throughout each year with warranty expenses also evenly spaced relative to the rates above.