Question: During 2013, Rao Co. introduced a new line of machines that carry a three-year warranty against manufacturerâ€TMs defects. Based on industry experience, warranty costs are estimated at 2% of sales in the year of sale, 3% in the year after sale, and 5% in the second year after sale. Sales and actual warranty expenditures for the first three-year period were as follows: (assume the accrual method) Sales Actual Warranty Expenditures 2013 $ 1,600,000 $ 39,000 2014 2,500,000 65,000 2015 2,100,000 135,000 $6,200,000 $239,000
What amount should Rao report as a liability at December 31, 2015?