During 2019, Lawton Company introduced a new line of machines that carry a 3-year assurance-type 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 3-year period were as follows:

What amount should Lawton report as a liability at December 31, 2021?
a. $0
b. $21,000
c. $84,000
d. $105,000

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Actual Warranty Expenditures $ 3,000 15,000 45,000 $63,000 Sales $ 200,000 2019 2020 500,000 700,000 $1,400,000 2021