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Cool Sound Ltd. manufactures a line of amplifiers that carry a three-year warranty against defects. Based on experience, the estimated warranty costs related to dollar

Cool Sound Ltd. manufactures a line of amplifiers that carry a three-year warranty against defects. Based on experience, the estimated warranty costs related to dollar sales are as follows: first year after sale2% of sales; second year after sale3% of sales; and third year after sale4% of sales. Sales and actual warranty expenditures for the first three years of business were:

Sales Warranty Expenditures
2018 $810,000 $16,500
2019 1,070,000 47,200
2020 1,036,000 83,000

Calculate the amount that Cool Sound Ltd. should report as warranty expense on its 2020 income statement and as a warranty liability on its December 31, 2020 SFP using the assurance-type warranty (expense-based approach). Assume that all sales are made evenly throughout each year and that warranty expenditures are also evenly spaced according to the rates above.

  1. what is the warranty expense for Cool Sound Ltd., on their 2020 income statement
  2. what is the warranty liability on its December 31, 2020 SF

I am also asking you to prepare journal entries for each year, 2018, 2019, and 2020 to:

  1. record the sales,
  2. record the actual warranty expenditure incurred during the year
  3. prepare the adjusting journal entry at the end of each year to pick up the balance of warranty expense applicable to that year.

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