What amount of warranty expense will Sierra (in Short Exercise 11-3) report during \(200^{-}\)? Does the warranty expense for the year equal the year's cash payments for warranties? Which accounting principle addresses this situation?

Exercise 11-3

Sierra Corporation guarantees its snowmobiles for three years. Company experience indicates that warranty costs will add up to \(5 \%\) of sales.

Assume that the Sierra dealer in Colorado Springs made sales totaling S500,000 during January \(200^{-}\), its first month of operations. The company received cash for \(30 \%\) of the sales and notes receivable for the remainder. Warranty payments totaled S21,000 during 2007.

1. Record the sales, warranty expense, and warranty payments for Sierra. 

2. Post to the Estimated Warranty Payable T-account. At the end of 2007, how much in estimated warranty payable does Sierra owe?