Sony introduces a new compact music player to compete with
Apple’s iPod that carries a two-year warranty against manufacturer’s defects.
Based on industry experience with similar product introductions, warranty costs
are expected to be approximately 3% of sales. By the end of the first year of
selling the product, total sales are $31 million, and actual warranty
expenditures are $300,000. What amount (if any) should Sony report as a
liability at the end of the year?
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