Tiger Machinery Company sold 400 color copiers in 2015 for $8,000 a piece on cre

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

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