Question - During 2010, General Machinery Company introduced a new line of machines that carry a three-year warranty against manufacturer's defects. Based on industry experience, warranty costs are estimated at 2% of sales in the year of sale, 4% in the year after sale, and 6% in the second year after sale. Sales and actual warranty expenditures for the first three-year period were as follows:
Year 2010: $225,000 Sales, and $3,375 actual warranty expenditure
Year 2011: $562,500 sales, and $16,875 actual warranty expenditure
Year 2012: $787,500 sales, and $50,625 actual warranty expenditure
Total sales = $ 1,575,000
Total actual warranty expenditure = $ 70,875
What amount should General Machinery report as a liability at December 31, 2012?
a. $0
b. $5,626
c. $76,500
d. $118,125