Tiger Machinery Company sold 400 color copiers in 2015 for $8,000 a piece on cre
ID: 2714471 • Letter: T
Question
Tiger Machinery Company sold 400 color copiers in 2015 for $8,000 a piece on credit, together with a two-year warranty. Maintenance on each copier during the warranty period averages $500. Actual warranty costs incurred in 2015 were $60,000. The amount of warranty liability reported on December 31, 2015, balance sheet would be:
Cash basis method: $0; Accrual-basis method: $60,000.
Cash basis method: $0; Accrual-basis method: $140,000.
Cash basis method: $60,000; Accrual-basis method: $80,000.
Cash basis method: $140,000; Accrual-basis method: $140,000.
Explanation / Answer
Cash basis method: $0; Accrual-basis method: $140,000.
warranty liabilty Accrual basis=400*500-60000=200000-60000=140000