During its first year of operations Keene Limited has sales of $76,500. The company offers a 2-year limited warranty on all sales and expects that warranty costs for the first year will average 0.5% of sales with an additional 1.5% in the second year. During the current year the company spent $1,200 on warranty repairs.

Required:

Prepare all journal entries related to the warranty for the current year.

How will the warranty liability be reported on the companys year-end balance sheet?