Journal entries for estimated warranty liabilities and subsequent expenditures. Global Motors Corporation offers three-year warranties against defects on the sales of its automobiles. The firm estimates that the total cost of warranty claims over the three-year warranty period on automobiles sold in a particular year (for example, Year 1) will equal 6 percent of sales revenue in the year of sale (that is, Year 1). The firm will incur actual warranty costs over the three-year period following the time of sale. Sales (all for cash) and actual warranty costs incurred on automobiles under warranty ( 60 percent in cash and 40 percent in parts) appear below:

a. Prepare journal entries for the events of Year 1, Year 2, and Year 3. Closing entries are not required.

b. What is the balance in the Estimated Warranty Liability account at the end of Year 3?

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Year 1 Year 2 Year 3 Sales $ 800,000 1,200,000 900,000 Actual Warranty Costs Incurred during Year on Automobiles under Warranty $22,000 55,000 52,000