A bike company offer a 3 year warranty on all their products. If minor defects happened in all their products sold,

repair costs would be $2m, If major defects occurred for all products sold, it would cost $6m. Based on past experience and future expectations, they estimate 15% of boards will have minor defects over the warranty period, and only 3% with major defects.

It is expected that 1/3 of the warranty claims (minor and major) will happen at the end of the first year, another 1/3 at the end of the second year and another 1/3 at the end of the third year. The pre-tax rate that reflects the current market assessments of the time value of money and the risks specific to the liability is 8%

a) calculate the amount of the warranty provision that you would advise the bike company to establish

b) provide appropriate journal entry for the bike company to establish a provision for warranties at 30 june 2019

c) on the 3 july 2019, the bike company paid out $35,000 in warranty claims, provide journal entry