ABC Ltd.provides a warranty with all the products it sells. It estimates that it will sell 1,200,000

units of its product for the year ended December 31, 2014, and that its total revenue for the

product will be $100,000,000. It also estimates that 60% of the product will have no defects,

30% will have major defects, and 10% will have minor defects. The cost of a minor defect is

estimated to be $5 for each product sold, and the cost for a major defect cost is $15. The

company also estimates that the minimum amount of warranty expense will be $2,500,000 and

the maximum will be $12,000,000.

Instructions

Prepare the journal entry to record provisions, if any, for ABC Ltd. at December 31, 2014.