1. Culver Company sells a machine for $7,340 with a 12-month warranty agreement that requires the company to replace all defective parts and to provide the repair labor at no cost to the customers. With sales being made evenly throughout the year, the company sells 500 machines in 2017 (warranty expense is incurred half in 2017 and half in 2018). As a result of product testing, the company estimates that the warranty cost is $394 per machine ($172 parts and $222 labor). Use "Inventory" account to record the warranty expense. Assuming that actual warranty costs are incurred exactly as estimated, what journal entries would be made relative to the following facts?

a) Sale of machinery and warranty expense incurred in 2017.

b) Warranty accrual on December 31, 2017.

c) Warranty costs incurred in 2018

d) What amount, if any, is disclosed in the balance sheet as a liability for future warranty costs as of December 31, 2017?

Warranty liability

$

2. Pronghorn Company offers an MP3 download (seven-single medley) as a premium for every 6 candy bar wrappers presented by customers together with $3.40. The candy bars are sold by the company to distributors for 30 cents each. The purchase price of each download code to the company is $3.15. In addition, it costs 50 cents to distribute each code. The results of the premium plan for the years 2017 and 2018 are as follows. (All purchases and sales are for cash.)

		2017		2018
MP3 codes purchased		345,000		455,400
Candy bars sold		2,998,000		2,809,300
Wrappers redeemed		1,656,000		2,070,000
2017 wrappers expected to be redeemed in 2018		400,200
2018 wrappers expected to be redeemed in 2019				483,000

a) Prepare the journal entries that should be made in 2017 and 2018 to record the transactions related to the premium plan of the Pronghorn Company.

b) Indicate the amounts for each accounts, and classifications of the items related to the premium plan that would appear on the balance sheet and the income statement at the end of 2017 and 2018.