Snapz Company manufactures and sells electronic games. Each game costs $25 to produce, sells for $45, and carries a warranty that provides for free replacement if it fails during the two years following the sale. In the past, 7 percent of the games sold had to be replaced under the warranty.

During July, Snapz sold 13,000 games, and 1,400 games were replaced under the warranty.

1. Prepare an entry in journal form to record the estimated liability for product warranties during the month.

2. Prepare an entry in journal form to record the games replaced under warranty during the month.

Vacation Pay Liability