Liability for Warranties Hardboard Treadmill Company provides a 60-day free parts and labor warranty plan for all treadmills sold. In addition, all parts but the walking tread are guaranteed for | year and replaced free of charge if the repair work is done by a factory-approved repair shop. Hardboard normally must repair 4 percent of the units sold within the 60-day period at an average cost of $172 per unit, and 15 percent of the units require replacement parts within the 1-year warranty at an average cost of $120 per unit. During 2002, Hardboard sold 40,000 treadmills at an average price of $1,500 per unit and provided warranty service costing $627,000 on treadmills sold in 2002.

a. What dollar amount of estimated warranty expense should Hardboard record in 2002?

b. What dollar amount of liability for warranty costs on treadmills sold in 2002 should Hardboard report at December 31, 2002?

c. After the year-end liability was established using the above information, Hardboard learned the average cost of replacement parts for the 2,600 units repaired under the 1-year warranty in the current year averaged $190 per unit rather than $120. If $190 per unit is used in estimating the liability on the remaining units, what adjustment should be made to the warranty liability at the end of the current period?