5) Merritt Equipment Company sells computers for $2,000 each and also gives each customer a 2-year warranty that requires the company to perform periodic services and to replace defective parts. During 2020, the company sold 2,200 computers. Based on past experience, the company has estimated the total 2-year warranty costs as $60 for parts and $75 for labor per unit. (Assume sales all occur at December 31, 2020.) In 2021, Merritt incurred actual warranty costs for parts and labor relative to 2020 computer sales for 1,200 units.

Instructions

(a) Record the entries to reflect the above transactions (accrual method) for 2020 and 2021.

(b) The transactions of part (a) create what balance under current liabilities in the 2020 balance sheet?