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What is the amount of liability for warranty reported

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Reference no: EM132946491

Sam company started business in 2020. It sells printers with a three-year warranty. Sam company estimates its warranty cost as a percentage of peso sales. Based on past experience, it is estimated that 2% will be repaired during the first year of warranty, 4% will be repaired during the second year of warranty and 6% will be repaired in the third year.

In 2020 and 2021, the company was able to sell 7,500 units and 8,400 units, respectively at a selling price of P5,000 unit. The company also incurred actual repair costs of P530,000 and P1,176,000 in 2020 and 2021, respectively.

Problem 1: What amount should Sam Company report as warranty expense in 2020?

Problem 2: What is the amount of liability for warranty reported in Sam Company's December 31, 2021 statement of financial position?

Problem 3: Assuming that sales and repair occur evenly throughout the period, how much would be the liability for warranty in the December 31, 2021 statement of financial position?

Reference no: EM132946491

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