During 2001 Davidson Company introduced a new line of machines that carry a three-year warranty against manufacturer's defects. Based in industry experience, warranty cost are estimated at 2% of sales in the year of sale and 6% in the second year after the sale. Sales and actual warranty expenditures for the first three-year period were as follows:
- Year Sales Actual Warranty Expenditures
- 2001 $ 200,000 $ 3,000
- 2002 500,000 15,000
- 2003 700,000 45,000
- $1,400,000 $ 63,000
What amount should Davidson report as a liability at December 31, 2003?