Build-Your-Dream-Home (BYDH) Construction Inc. provides a 3 year warranty to each newly built house against defects. Historical data and industry averages indicate that warranty costs are usually 0.3% of the sales amount during the first year after the houses sold, 0.4% of the sales during the second year, and 0.5% of the sales during the third year. BYDH sold $10 million in houses in the current year--2019. Which of the following statements is correct regarding warranty costs?

BYDH needs to record this adjusting journal entry in 2019: dr Warranty Expense 30,000 cr Warranty Reserve 30,000 BYDH needs to record this adjusting journal entry in 2019: dr Warranty Expense 120,000 Warranty Reserve 120,000 cr The Warranty Reserve account is a contra-asset account Every time BYDH needs to make warranty payments, the company should debit Warranty Expense and credit Cash