During its first year of operations ABC Limited had sales of $325,000. The company offers a 2- year limited warranty on all sales and expects that warranty costs for the first year will average 1% of sales with an additional 2% in the second year. During the current year the company spent $2,200 on warranty repairs.

Required:

1. Prepare all journal entries related to the warranty for the current year. (5 Marks)

2. How will the warranty liability be reported on the company's year-end balance sheet? (5 Marks)