A Company's Estimated Warranty Liability Account Balance Calculation

What should be the Estimated Warranty Liability account balance as of June 30?

The account balance of Estimated Warranty Liability account as of June 30 should be $22,470. Warranty costs are estimated to be 3.5% of sales for parts and 1.25% of sales for labor. The sales for June amounted to $452,000. During June, the company performed warranty work and used $8,000 worth of parts and paid $2,000 in wages for labor to do the warranty work.

Calculation of Estimated Warranty Costs:

Parts: 3.5% of $452,000 = $15,820 Labor: 1.25% of $452,000 = $5,650 Total Estimated Warranty Costs for June: $15,820 + $5,650 = $21,470 The credit balance of the Estimated Warranty Liability account on May 31 was $11,000. Therefore, the amount to be debited as of June 30 would be: $11,000 + $21,470 = $22,470 Thus, the Estimated Warranty Liability account balance as of June 30 would be $22,470. Option (C) is correct.
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