Adrian, Inc. manufactures and sells computer monitors with a 3 year warranty. Warranty costs are expected to average 8% of sales during the warranty period. The following table shows the sales and actual warranty payments during the first 2 years of operations:
|
Year |
Sales |
Warranty Payments |
|
20X1 |
$500,000 |
$ 4,000 |
|
20X2 |
700,000 |
32,000 |
Based on these facts, what amount of warranty liability should Adrian, Inc. report on its balance sheet at December 31, 20X2?
a. $32,000
b. $36,000
c. $60,000
d. $96,000