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What amount of warranty liability should muhammed inc

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Muhammad Inc. manufacturers and sells computer monitors with a 3-year warranty. Warranty costs are expected to average 7% of sales during the warranty period. The following table shows the sales and actual warranty payments during the first 2 years of operations:

Year               Sales             Warranty Payments

2016          $500,000          $4,500
2017             $800,000       $40,000

Question 1: Based on these facts, what amount of warranty liability should Muhammed Inc. report on its balance sheet at December 31, 2017?

a. $46,500
b. $91,000
c. $40,000
d. $44,500

Reference no: EM132782757

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