Assurance-Type Warranties Instructions On September 1,2016, Carolina Electronics Company has 1,110 Blu-ray players ready for sale. On October 1, 2016, 860 are sold, on account, at \$135 each with a 1-year assurance-type warranty. Carolina estimates that the warranty cost on each Blu-ray player sold will probably average $7 per unit. During the final 3 months of 2016, Carolina incurred warranty costs of $3,425, and in 2017 warranty costs were $2,595. Required: 1. Prepare the journal entries for the preceding transactions. 2. Show how the preceding items would be reported on the December 31, 2016, balance sheet. 3. Prepare the journal entries for the preceding transactions using the modified cash basis method. 4. Next Level Which method produces the better measure of income? Why? 1. the sale of Blu-ray players an account on October 1,2016 2. the relared warranty accrual on October 1, 2016 3. the warranty costs paid during the last quarter of 2016 4. the warranty costs paid during the 2017 Select the item below that is true in response to the better measure of income and the reason why. The modified cash basis method provides the better measure of income because it properly matches warranty costs to the revenues that the warranties helped generate. This method also creates a contingent liability representing a company's expected use of resources. The accrual method provides the better measure of income because it properly matches warranty costs to the revenues that the warranties helped generate. This method also creates a contingent liability representing a company's expected use of resources. Under the accrual method, a company's liabilities will be misstated. In addition, the accrual method misstates warranty expense, and income, because the actual warranty repair occurs in a period other than the period in which the sale occurs. The direct expense method provides the better measure of income because it expenses warranty costs when incurred. Assurance-Type Warranties Instructions Chart of Accounts General Journal Balance Sheet Next Level Additional Instructions Chart of Accounts