Adamson Sells a Product with a Four-Year Warranty Additional Data

question 19

Essay

Adamson sells a product with a four-year warranty.Warranty costs are estimated as a percentage of sales as follows:
$\begin{array}{llr} \text { Year of sale} &1\%\\ \text { Year after sale} &1\%\\ \text { Two years after sale } &1\%\\ \text { Three years after sale} &4\%\\\end{array}$
Additional data:
$\begin{array}{ccc}& \text { Watranty } & \\\text { Year } & \text { Sales } & \text { Expenditures }\\2009 & \$ 50,000 & \$ 600 \\2010 & 60,000 & 800 \\2011 & 40,000 & 900 \\2012 & 70,000 & 2.500\end{array}$ Required:
a. If the modified cash method is in use, what would be warranty expense for 2011 ?
b. If the expense warraty acculat method is in use, what woutd be warranty expense for 2011 ?
c. If the expense warraty acculal method is in use, what amount of liability for warranties would be chsclosed on the balance sheet on December 31, 2012?

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Definitions:

Gold Standard

A monetary system in which the value of a country's currency is directly linked to a fixed amount of gold, allowing for the conversion of currency into a specified amount of gold.

Floating Exchange Rates

A currency valuation system where exchange rates are determined by the free market forces of supply and demand without direct government intervention.

Interest Rates

The cost of borrowing money or the reward for saving, typically expressed as a percentage.

Creditor Nation

A country that has more investments abroad than other countries have in it, leading to a net positive international investment position.