In 2012, Best Stuff, Inc., had sales of $90,000 of its new video recorders. The company gives a two-year warranty with the purchase of a video recorder. When Best Stuff recorded the sales, the company also estimated that it would spend $8,400 to honor those warranties. When the company prepared its annual financial statements for 2012, no video recorders had been brought in for repair. In January 2013, however, 20 people brought in their broken video recorders, and Best Stuff spent a total of $750 repairing them (at no charge to the customers, because the video recorders were under warranty). Assume no additional sales were made in January 2013 (i.e., no new warranties were given in January).
1. How much warranty expense related to the sales of video recorders would Best Stuff show on an income statement for the year 2012?
2. Would Best Stuff have a warranty liability on the balance sheet at the end of 2012? If so, how much?
3. How much warranty expense would Best Stuff show on an income statement for the month of January 2013 related to these video recorders?
4. Would Best Stuff have a warranty liability on the balance sheet at January 31, 2013? If so, how much?