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 yr after sale- 2% of sales; 2nd yr after sale- 3% of sales; and third yr after sale- 5% of sales. SAles and actual warranty expenditures for the first 3 years of business were
Sales Warranty Expenditures
2009 $ 800,000 $6,500
2010 $1,100,000 $17,200
2011 $1,200,00 $62,00
Compute the amount that Schmitt COmpany should report as a liability in its December 31, 2011, balance sheet. Assume that all the sales are made evenly throughout the year with warranty expenses also evenly spaced relative to the rates above.