Blue Jay, Inc., manufactures and sells computer monitors with a three-year warranty. Warranty costs are expected to

Question:

Blue Jay, Inc., manufactures and sells computer monitors with a three-year warranty. Warranty costs are expected to average 7% of sales during the warranty period. The following table shows the sales and actual warranty payments during the first two years of operations:

Sales Year 2018 2019 Warranty Payments $ 5,850 42,500 $650,000 850,000

Based on these facts, what amount of warranty liability should Blue Jay, Inc., report on its balance sheet at December 31, 2019?

a. $48,350

b. $56,650

c. $105,000

d. $42,500

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...

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