Woodmier Lawn Products introduced a new line of commercial sprinklers in 2023 that carry a one-year warranty against manufacturer’s defects. Because this was the first product for which the company offered a warranty, trade publications were consulted to determine the experience of others in the industry. Based on that experience, warranty costs were expected to approximate 2% of sales. Sales of the sprinklers in 2023 were $2.5 million. Accordingly, the following entries relating to the contingency for warranty costs were recorded during the first year of selling the product:

In late 2024, the company’s claims experience was evaluated and it was determined that claims were far more than expected—3% of sales rather than 2%.

Required:
1. Assuming sales of the sprinklers in 2024 were $3.6 million and warranty expenditures in 2024 totaled $88,000, prepare any journal entries related to the warranty.
2. Assuming sales of the sprinklers were discontinued after 2023, prepare any journal entry(s) in 2024 related to the warranty.

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Accrued liability and expense Warranty expense (2% x $2,500,000) Warranty liability Actual expenditures (summary entry) Warranty liability Cash 50,000 23,000 50,000 23,000