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Question: during 2016 green thumb company introduced a new line of...

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During 2016 Green Thumb Company introduced a new line of garden shears that carry a two-year warranty against defects. Experience indicates that warranty costs should be 2% of net sales in the year of sale and 3% in the year after sale. Net sales and actual warranty expenditures were as follows:

Net
sales
Actual warranty expenditures
2016 $ 45,000 $ 1,000
2017 120,000 3,500


At December 31, 2017, Green Thumb should report as a warranty liability of:

Multiple Choice

  • $900

  • $1,250

  • $3,750

  • $4,500

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