Question

Starting on 1/1/15, Padres Co will cover the sale of baseball products with a warranty against all defects. Baseball machines are warrantied for 2 years, while baseball equipment will be warrantied for 3 years. Past experience from similar companies is used to estimate costs, as a percent of sales, associated with warranty claims. The following recaps the activities for Padres Co's two products during the three-year period 2016-2018: BASEBALL MACHINES BASEBALL EQUIPMENT Year of Warranty Estimated Warranty Cost Estimated Warranty Cost 1st 4% 1% 2nd 3% 2% 3rd n/a 5% BASEBALL MACHINES BASEBALL EQUIPMENT YEAR Sales Actual Warrany Claims Sales Actual Warrany Claims 2016 $1,800,000 $116,000 $3,700,000 $112,000 2017 $2,100,000 $132,000 $4,200,000 $303,000 2018 $2,600,000 $189,000 $4,300,000 $356,000 The total amount of estimated warranty liability at 12/31/15 was $290,000, with $43,000 attributed to Machines and $247,000 attributed to Equipment.

** REQUIRED: 1) Determine the TOTAL amount of the following: a) warranty expense FYE 12/31/16. 422,000 b) estimated warranty liability (balance) at 12/31/16. 484,000 c) warranty expense FYE 12/31/17. 483,000 d) estimated warranty liability (balance) at 12/31/18. 513,000 ​Here are the correct answers, can you please explain how they were computed.

Answer 1

Answer 1-a.
Warranty Expense - 12/31/16
Machines - $1,800,000 X 7%	126,000.00
Equipment - $3,700,000 X 8%	296,000.00
Total Warranty Expense	422,000.00
Answer 1-b.
Estimated Warranty Liability Balance - 12/31/16
Beginning balance - 12/31/15	290,000.00
Add: Warranty Lianility - 2016	422,000.00
Sub-total	712,000.00
Less: Warranty Given - 2016 - $116,000 + $112,000	(228,000.00)
Ending Balance - 12/31/16	484,000.00
Answer 1-c.
Warranty Expense - 12/31/17
Machines - $2,100,000 X 7%	147,000.00
Equipment - $4,200,000 X 8%	336,000.00
Total Warranty Expense	483,000.00
Answer 1-d.
Warranty Expense - 12/31/18
Machines - $2,600,000 X 7%	182,000.00
Equipment - $4,300,000 X 8%	344,000.00
Total Warranty Expense	526,000.00
Estimated Warranty Liability Balance - 12/31/18
Beginning balance - 12/31/16	484,000.00
Add: Warranty Lianility - 2017	483,000.00
Sub-total	967,000.00
Less: Warranty Given - 2017 - $132,000 + $303,000	(435,000.00)
Ending Balance - 12/31/17	532,000.00
Add: Warranty Lianility - 2018	526,000.00
Sub-total	1,058,000.00
Less: Warranty Given - 2018 - $189,000 + $356,000	(545,000.00)
Ending Balance - 12/31/18	513,000.00