American Business Services Introduced a New Machine on January 1

question 32

Multiple Choice

American Business Services introduced a new machine on January 1, 2014. The machine carried a two-year warranty against defects. The estimated warranty costs related to dollar sales were 3% in the year of sale and 5% in the year after sale. Additional information follows:

$\begin{array}{l}\begin{array}{rrr}\text { Actual Warranty }\\\underline{\text { Expenditures }}&\underline{\text { Sales}}&\underline{\text { Year}}\\\$ 900 & \$ 50,000 & 2014 \\4,200 & 80,000 &2015\end{array}\end{array}$
If the expense warranty accrual method is used, what amount relating to warranties should be reflected on the December 31, 2015, balance sheet?

• A) $5,300
• B) $6,400
• C) $6,500
• D) $9,100

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