Problems: Please show all calculations.

Claudette, Inc., provides warranties for many of its products. The January 1, 2014, balance of the Estimated Warranty Liability account was $38,500. Based on an analysis of warranty claims during the past several years, this year’s warranty provision was estimated to be 1% of sales. During 2014, the actual costs of servicing products under warranty were $51,000, and sales were $5,300,000.

1.) What amount of Warranty Expense will appear on the income statement for 2014?

2.) What amount will be reported in the Estimated Warranty Liability account on the December 31, 2014 balance sheet?

(PLEASE ANSWER BOTH QUESTIONS 1 and 2 AND SHOW ALL CALCULATIONS)

32

4-5=1

To calculate the warranty expense and the estimated warranty liability, we need to follow these steps:

1. Calculate the warranty expense:
The warranty expense is estimated as 1% of sales.

Warranty Expense = Sales * Warranty Rate
Warranty Expense = $5,300,000 * 1%
Warranty Expense = $5,300,000 * 0.01
Warranty Expense = $53,000

Therefore, the amount of Warranty Expense that will appear on the income statement for 2014 is $53,000.

2. Calculate the estimated warranty liability:
The estimated warranty liability is the balance in the Estimated Warranty Liability account plus the actual costs of servicing products under warranty.

Estimated Warranty Liability = January 1 balance + Actual Servicing Costs
Estimated Warranty Liability = $38,500 + $51,000
Estimated Warranty Liability = $89,500

Therefore, the amount that will be reported in the Estimated Warranty Liability account on the December 31, 2014 balance sheet is $89,500.