Homework Problem 5-2

Situation

1. LOB B sells electronic imaging devices to the US Government

2. All devices include a three-year warranty

3. Future Warranty costs are estimated at 2% of sales

Additional Information LOB B Sales Warranty Costs

Year 1 $1,000K sales $15K warranty costs

Year 2 $ 750K sales $15K warranty costs

Year3 $ 900K sales $12K warranty costs

Year 4 0 sales $ 4K warranty costs

Year 5 0 sales $ 2K warranty costs

Requirement What is the balance in the Warranty Provisions account at the end of Year 5?