To determine the warranty liability that Grando Company should record at the end of the first year, it's important to understand the nature of warranty obligations and how they are accounted for.
Warranty liability is typically calculated based on the expected costs of fulfilling warranty claims on products sold within a certain period. This estimation takes into consideration factors such as historical claims data, the total sales of products that include warranties, and the expected costs of repairs or replacements.
In this case, if the answer provided is 650, it likely reflects an appropriate calculation based on these factors. For instance, if Grando Company sold a certain number of units and historically knows that a specific percentage of those units will result in warranty claims, the liability would be calculated by applying that percentage to sales and estimating the average cost per claim.
If 650 is the calculated warranty liability, it indicates that the company properly estimated future warranty expenses based on past experiences and anticipations of future claims, leading to a conservative and judicious approach to financial reporting. This number would be appropriately reflected on the company’s balance sheet as a liability, indicating the company's obligation to service warranties on the sold products.