Tanner Toys had sales of $2,500,000 during 2012. In 2011, 5% of sales were returned for a refund, but Tanner believes that recent product changes will reduce warranty expense to about 3% of 2012 sales.
Required
a. What amount is Tanner expecting to refund customers for purchases made in 2012?
b. Should this amount be reported as a liability on the financial statements? Why or why not?
c. Is Tanner using a reasonable means to estimate warranty expense?