Kuhnjm – The definition of a warranty liability is a liability account that reports the estimated amount that a company will have to spend to repair or replace a product during its warranty period (in this case, 2 years).
The liability amount is recorded at the time of the sale (In this case, year 1). It is also the time when the expense is reported.
The liability will be reduced by the actual expenditures to repair or replace the product.
So in year 1, they account for the full 6% as the liability and then as actual expenditures occur, this will reduce the liability.
Hope this helps!
P.S. I googled estimated warranties to find this out. I often find becker doesn't cover what these questions ask. And while Ninja is great at giving us what to expect on exam day, it's not always the best method of learning. I google, I youtube (did that a LOT for BEC for variances), etc.
A - 75
B - 78 God is good.
F - 77 Answered prayers.
R - 84! Done!!
Paperwork sent - waiting for license!!
Still on a cloud and in shock. Through God, all things will happen.
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