Bombardier Inc. specializes in manufacturing transportation products (aircraft, railway equipment, snowmobiles, and watercraft). The company offers warranties on all of its products. Note 12 to Bombardier's financial statements for fiscal year 2010 stated the following: Product warranties typically range from one to five years, except for aircraft structural warranties that extend up to 20 years.

Selected information from Bombardier's annual reports follows (amounts in millions of U.S. dollars).

During fiscal year 2010, Bombardier paid \(\$ 400\) million to customers in exchange for returned products under the warranty.
\section*{Required:}
1. Compute the amount of warranty expense for fiscal year 2010.
2. Prepare journal entries to record both the warranty expense for the year and the payments made under the warranty.
3. Compute the ratio of the warranty liability to revenues for the three years. Has the ratio increased or decreased during the three-year period?
4. Based on the limited information available about the warranty expense and payments in 2010, should Bombardier increase the balance of the warranty liability in future years? Explain.

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2010 2009 2008 Revenues 19,366 19,721 17,506 Estimated warranty liability at year-end 1,040 931 1,041