During 20X0, the Ashley Appliance Company had cash sales of $800,000. The company estimates that the cost of servicing products under warranty will average 3% of sales.
1. Prepare journal entries for sales revenue and the related warranty expense for 20X0. Assume all sales are for cash.
2. The liability for warranties was $12,000 at the beginning of 20X0. Expenditures (all in cash) to satisfy warranty claims during 20X0 were $21,400, of which $4,000 was for products sold in 20X0. Prepare the journal entry for the warranty expenditures.
3. Compute the balance in the Liability for Warranties account at the end of 20X0.