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What amount should ggc report as a provision for warranty

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Reference no: EM132835765

Gidget's Gadgets Corp. (GGC) manufactures electronic equipment such as TVs; computers; and smartphones. In keeping with industry practice, GGC offers a two-year warranty on all products it sells. The warranty coverage is automatic, that is all purchasers receive warranty coverage when they buy any of GGC's products. Moreover, GGC does not sell warranty coverage on its, or other competitor's products on a stand-alone basis. GGC estimates that its warranty costs will average 1% of sales in the first year following the sale and 2% in the second year following the sale for total estimated costs of 3% of sales. Summary details with respect to GGC's warranty plan follow:

December 31, 20X3

Provision for warranties balance$140,000

20X4

Net sales  $6,000,000

20X4

Cost of warranty repairs $160,000

20X5

Net sales$7,000,000

Cost of warranty repairs $170,000

Problem 1: What amount should GGC report as a provision for warranty payable on its statement of financial position as at December 31, 20X5?

a. $170,000
b. $200,000
c. $210,000
d. $60,000

Reference no: EM132835765

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