During 2010, Eaton Co. introduced a new product carrying a 2-year warranty against defects. The estimated warranty costs related to dollar sales are 2% within 12 months following sale and 4% in the second 12 months following sale. Sales and actual warranty expenditures for the years ended December 31, 2010 and 2011 are as follows:
Actual Warranty
Sales Expenditures
2010 $ 800,000 $12,000
2011 1,000,000 30,000
$1,800,000 $42,000
At December 31, 2011, Eaton should report an estimated warranty liability of
$0.
$10,000.
$30,000.
$66,000.