Computer Wholesalers restores and resells notebook computers. It originally acquires the notebook computers from corporations upgrading their computer systems, and it backs each notebook it sells with a 90-day warranty against defects. Based on previous experience, Computer Wholesalers expects warranty costs to be approximately 6% of sales. Sales for the month of December are $600,000. Actual warranty expenditures in January of the following year were $13,000.

Required:

1. Does this situation represent a contingent liability? Why or why not?

2. Record warranty expense and warranty liability for the month of December based on 6% of sales.

3. Record the payment of the actual warranty expenditures of $13,000 in January of the following year.

4. What is the balance in the Warranty Liability account after the entries in requirements 2 and 3?