During 2007 Lawton Company introduced a new line of machines that carry a three year warranty against manufacturer’s defects. Based on industry experience, warranty costs are estimated at 2% of sales in the year of sale, 4% in the year after sale, and 6% in the second year after sale. Sales and actual warranty expenditures for the first three year period were as follows:
|
Sales |
Actual Warranty Expenditures |
|
|
2007 |
$200,000 |
$3,000 |
|
2008 |
500,000 |
15,000 |
|
2009 |
700,000 |
45,000 |
|
$1,400,000 |
$63,000 |
What amount should Lawton report as a liability at December 31, 2009?
a. $0
b. $5,000
c. $68,000
d. $105,000