High Fidelity Corporation sells stereos under a 2-year warranty contract that requires High Fidelity to replace defective parts and provide free labor on all repairs. During 2007, 1,050 units were sold at $900 each. In 2008, High Fidelity sold an additional 900 units at $925. Based on past experience, the estimated 2-year warranty costs are $20 for parts and $25 for labor per unit. It is also estimated that 40% of the warranty expenditures will occur in the first year and 60% in the second year. Actual warranty expenditures were as follows:

Required:

Assuming that sales occurred on the last day of the year for both 2007 and 2008, give the necessary journal entries for the years 2007 through 2009. Analyze the warranty liability account for the year ended December 31, 2009, to see whether the actual repairs approximate the estimate. Should High Fidelity revise its warranty estimates?