Talks-A-Lot, Inc. sells cell phones to customers and expects that 10% of phones sold will be returned for repair under its warranty program. The average repair cost is $75 per phone. For 2021, Talks-A-Lot has sold 750 cell phones and has repaired 30 of them as of December 31, 2021. What amount of warranty liability should be reported at December 31, 2021?

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Business

Joy Porter

Today, 13:45

Talks-A-Lot, Inc. sells cell phones to customers and expects that 10% of phones sold will be returned for repair under its warranty program. The average repair cost is $75 per phone. For 2021, Talks-A-Lot has sold 750 cell phones and has repaired 30 of them as of December 31, 2021. What amount of warranty liability should be reported at December 31, 2021?

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Braelyn Bell · Answer 1

amount of warranty liability that should be reported at December 31, 2021 is $3,375

Explanation:

When the Sale was made, the Warrant Liability is recorded as follows:

Warranty Cost $5,625 (Debit)

Warranty Provision $5,625 (Credit)

Warranty Cost = 750 cell phones * $75 * 10% = $5,625

When Warranty Claims were received during the year the records are as follows:

Warranty Provision $2,250 (Debit)

Cash $2,250 (Debit)

Warranty Cost = 30 * $75 = $2,250

At December 31, 2021 the amount of warranty liability should be

Warranty Provision = $5,625 - $2,250 = $3,375