Exhibit 9-4 During 2016, the Thomas Company Began Selling a New Type

Multiple Choice

Exhibit 9-4
During 2016, the Thomas Company began selling a new type of machine that carries a two-year assurance-type warranty against all defects. Based on past industry and company experience, estimated warranty costs should total
$2,000 per machine sold. During 2016, sales and actual warranty expenditures were $4,000,000 80 machines) and
$44,000, respectively. Thomas uses the GAAP approach of accruing warranty expense and the related liability) in the year of the sale.
-Refer to Exhibit 9-4. What amount should Thomas report as its estimated warranty liability at December 31, 2016?

A) $0
B) $44,000
C) $120,000
D) $116,000