Cole Electronics, Inc. manufactures and distributes LCD televisions. Every television manufactured by Cole carries an assurance-type warranty covering all parts and labor to protect against defects for a two- year period. During the current year, Cole’s sales amounted to $ 10,000,000. Cole estimates that the total costs of providing the assurance- type warranty will be 4% of sales. Actual repair costs for the first year after the sale were $ 218,000 with $ 150,000 for parts and $ 68,000 for labor (paid). During the second year, the company incurred $ 230,000 in total repairs with $ 148,000 for parts and $ 82,000 for labor (paid).
Required
a. Prepare the journal entries for each year under the warranty assuming that Cole uses the cash basis.
b. Independent of your answer to part (a), prepare the journal entries required to record the events related to the warranty using the accrual basis.