Stanger Educational Services Corp. sells multimedia presentation systems. In its first year of operations in 2018, the company sold 1,000 units for $5,000 cash each, representing a 25% markup over cost. Stanger provides a one-year parts and labour warranty on each system they sell; the estimated cost of providing the warranty coverage is $400 per unit.

The cost to Stanger of meeting their warranty claims in 2018 was $170,000: $50,000 for parts and $120,000 for labour.

For part (a), assume that Stanger properly provides for the warranties on an accrual basis. For part (b), assume that Stanger erroneously concludes that the warranty costs are immaterial and elects to account for the warranty obligations on a cash basis.

Required:

a. Prepare journal entries to record the forgoing events on an accrual basis.

b. Prepare journal entries to record the forgoing events on a cash basis.

c. Discuss why the cash basis cannot normally be used to account for warranty expenses.

d. Warranty claims in 2019 related to 2018 sales were $300,000, raising the total cost to $470,000. How should Stanger account for the $70,000 claimed in excess of that previously provided for?