Beck Company sells a product for $3,200. When the customer buys it, Beck provides a one-year warranty. Beck sold 120 products during 2010. Based on analysis of past warranty records, Beck estimates that repairs will average 4% of total sales.

Required

1. Identify and analyze the effect of recording the estimated liability.

2. Assume that during 2010, products under warranty must be repaired using repair parts from inventory costing $10,200. Identify and analyze the effect of recording the repair of products.

3. Assume that the balance of the Estimated Liabilities for Warranties account as of the beginning of 2010 was $1,100. Calculate the balance of the account as of the end of 2010.