During 2020, in its first year of operations, Bennett Co. introduced a new line of machines that carry a three-year warranty against manufacturers defects. Based on industry experience, warranty costs are estimated at 2% of sales in the year of sale, 4% in the year after sale, and 6% in the second year after sale. Sales were $8,600,000 and $9,500,000 in 2020 and 2021, respectively. Actual warranty expenditures were $165,000 and $484,000 in 2020 and 2021, respectively. During 2021, Bennetts warranty liability:

Multiple Choice

• Decreases by $228,000

• Increases by $656,000

• Decreases by $294,000

• Increases by $50,000