A company begins operations in Year 1 and offers a one-year warranty on all products sold. Total appliance sales in Year 1 are $1,600,000, and the company estimates future warranty costs in Year 2 to be 2% of current sales. Actual warranty costs in Year 2 are $25,000. Also in Year 2, the company has additional sales of $2,400,000 and revises its estimate of warranty costs associated with sales in Year 2 to be 1.5%.

1. Record the contingent liability for warranties for the year ending December 31, Year 1.

2. Record the actual warranty expenditures, assuming all costs were paid in cash.

3. Record the contingent liability for warranties for the year ending December 31, Year 2.

4. What is the balance in Warranty Liability at the end of Year 1 and Year 2?