Journal entries for estimated warranty liabilities and subsequent expenditures. A new appliance introduced by May pool Corporation carries a two-year warranty against defects. The firm estimates that the total cost of warranty claims over the two-year period on appliances sold in a particular year (lor example. Year I ) will equal 4 percent of sales revenue in the year of sale

(that is. Year 1). The firm will incur actual warranty costs over the two-year period following the time of sale. Sales (all on account) and actual warranty expenditures (all paid in cash) for the first two years of the appliances life were as follows:

Sales Actual Warranty Expenditures Year 1 Year 2

$1,200,000 1,500,000 $12,000 50,000

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

b. What is the balance in the Estimated Warranty Liability account at the end of Year 2?