During Year 1, Ward Company introduced a new product carrying a three-year warranty against defects, which has a separate purchase price. The company collected $52,000 and $91,000 for this separate warranty in Year 1 and Year 2, respectively. The company uses straight-line recognition of warranty revenue. For simplification, assume that sales occurred at the first of the year. Sales and actual warranty expenditures for the years ended December 31 Year 1 and Year 2 follow:

		Actual Warranty
	Sales	Expenditures
Year 1	$1,560,000	$23,400
Year 2	2,600,000	78,000
	$4,160,000	$101,400

Required

a. Record the journal entries for Year 1 and 2 for (1) the sale of the products and warranties on credit, (2) incurred cash warranty costs, and (3) recognition of warranty revenue.

b. What liability would be reported on the balance sheet at the end of Year 1 and Year 2?

Note: Round your answers to the nearest whole dollar.

Date	Account Name	Dr.	Cr.
a. (1) Year 1	CashAccounts ReceivableInventoryEquipmentCopyrightAccrued CompensationDeferred Warranty RevenueEstimated Litigation LiabilityInterest PayableSalaries PayableSales Taxes PayableWarranty LiabilityNote PayableDiscount on Note PayableAsset Retirement ObligationSales RevenueGift Card Breakage RevenueWarranty RevenueCost of Goods SoldInterest ExpenseLegal ExpenseSalaries ExpenseWarranty ExpenseGain on Litigation SettlementLoss on Litigation Settlement		Answer
	CashAccounts ReceivableInventoryEquipmentCopyrightAccrued CompensationDeferred Warranty RevenueEstimated Litigation LiabilityInterest PayableSalaries PayableSales Taxes PayableWarranty LiabilityNote PayableDiscount on Note PayableAsset Retirement ObligationSales RevenueGift Card Breakage RevenueWarranty RevenueCost of Goods SoldInterest ExpenseLegal ExpenseSalaries ExpenseWarranty ExpenseGain on Litigation SettlementLoss on Litigation Settlement		Answer
	CashAccounts ReceivableInventoryEquipmentCopyrightAccrued CompensationDeferred Warranty RevenueEstimated Litigation LiabilityInterest PayableSalaries PayableSales Taxes PayableWarranty LiabilityNote PayableDiscount on Note PayableAsset Retirement ObligationSales RevenueGift Card Breakage RevenueWarranty RevenueCost of Goods SoldInterest ExpenseLegal ExpenseSalaries ExpenseWarranty ExpenseGain on Litigation SettlementLoss on Litigation Settlement		Answer
	To record sale of products and warranties
a. (2) Year 1	CashAccounts ReceivableInventoryEquipmentCopyrightAccrued CompensationDeferred Warranty RevenueEstimated Litigation LiabilityInterest PayableSalaries PayableSales Taxes PayableWarranty LiabilityNote PayableDiscount on Note PayableAsset Retirement ObligationSales RevenueGift Card Breakage RevenueWarranty RevenueCost of Goods SoldInterest ExpenseLegal ExpenseSalaries ExpenseWarranty ExpenseGain on Litigation SettlementLoss on Litigation Settlement		Answer
	CashAccounts ReceivableInventoryEquipmentCopyrightAccrued CompensationDeferred Warranty RevenueEstimated Litigation LiabilityInterest PayableSalaries PayableSales Taxes PayableWarranty LiabilityNote PayableDiscount on Note PayableAsset Retirement ObligationSales RevenueGift Card Breakage RevenueWarranty RevenueCost of Goods SoldInterest ExpenseLegal ExpenseSalaries ExpenseWarranty ExpenseGain on Litigation SettlementLoss on Litigation Settlement		Answer
	To record incurred warranty costs
a. (3) Year 1	CashAccounts ReceivableInventoryEquipmentCopyrightAccrued CompensationDeferred Warranty RevenueEstimated Litigation LiabilityInterest PayableSalaries PayableSales Taxes PayableWarranty LiabilityNote PayableDiscount on Note PayableAsset Retirement ObligationSales RevenueGift Card Breakage RevenueWarranty RevenueCost of Goods SoldInterest ExpenseLegal ExpenseSalaries ExpenseWarranty ExpenseGain on Litigation SettlementLoss on Litigation Settlement		Answer
	CashAccounts ReceivableInventoryEquipmentCopyrightAccrued CompensationDeferred Warranty RevenueEstimated Litigation LiabilityInterest PayableSalaries PayableSales Taxes PayableWarranty LiabilityNote PayableDiscount on Note PayableAsset Retirement ObligationSales RevenueGift Card Breakage RevenueWarranty RevenueCost of Goods SoldInterest ExpenseLegal ExpenseSalaries ExpenseWarranty ExpenseGain on Litigation SettlementLoss on Litigation Settlement		Answer
	To recognize warranty revenue
a. (1) Year 2	CashAccounts ReceivableInventoryEquipmentCopyrightAccrued CompensationDeferred Warranty RevenueEstimated Litigation LiabilityInterest PayableSalaries PayableSales Taxes PayableWarranty LiabilityNote PayableDiscount on Note PayableAsset Retirement ObligationSales RevenueGift Card Breakage RevenueWarranty RevenueCost of Goods SoldInterest ExpenseLegal ExpenseSalaries ExpenseWarranty ExpenseGain on Litigation SettlementLoss on Litigation Settlement		Answer
	CashAccounts ReceivableInventoryEquipmentCopyrightAccrued CompensationDeferred Warranty RevenueEstimated Litigation LiabilityInterest PayableSalaries PayableSales Taxes PayableWarranty LiabilityNote PayableDiscount on Note PayableAsset Retirement ObligationSales RevenueGift Card Breakage RevenueWarranty RevenueCost of Goods SoldInterest ExpenseLegal ExpenseSalaries ExpenseWarranty ExpenseGain on Litigation SettlementLoss on Litigation Settlement		Answer
	CashAccounts ReceivableInventoryEquipmentCopyrightAccrued CompensationDeferred Warranty RevenueEstimated Litigation LiabilityInterest PayableSalaries PayableSales Taxes PayableWarranty LiabilityNote PayableDiscount on Note PayableAsset Retirement ObligationSales RevenueGift Card Breakage RevenueWarranty RevenueCost of Goods SoldInterest ExpenseLegal ExpenseSalaries ExpenseWarranty ExpenseGain on Litigation SettlementLoss on Litigation Settlement		Answer
	To record sale of products and warranties
a. (2) Year 2	CashAccounts ReceivableInventoryEquipmentCopyrightAccrued CompensationDeferred Warranty RevenueEstimated Litigation LiabilityInterest PayableSalaries PayableSales Taxes PayableWarranty LiabilityNote PayableDiscount on Note PayableAsset Retirement ObligationSales RevenueGift Card Breakage RevenueWarranty RevenueCost of Goods SoldInterest ExpenseLegal ExpenseSalaries ExpenseWarranty ExpenseGain on Litigation SettlementLoss on Litigation Settlement		Answer
	CashAccounts ReceivableInventoryEquipmentCopyrightAccrued CompensationDeferred Warranty RevenueEstimated Litigation LiabilityInterest PayableSalaries PayableSales Taxes PayableWarranty LiabilityNote PayableDiscount on Note PayableAsset Retirement ObligationSales RevenueGift Card Breakage RevenueWarranty RevenueCost of Goods SoldInterest ExpenseLegal ExpenseSalaries ExpenseWarranty ExpenseGain on Litigation SettlementLoss on Litigation Settlement		Answer
	To record incurred warranty costs
a. (3) Year 2	CashAccounts ReceivableInventoryEquipmentCopyrightAccrued CompensationDeferred Warranty RevenueEstimated Litigation LiabilityInterest PayableSalaries PayableSales Taxes PayableWarranty LiabilityNote PayableDiscount on Note PayableAsset Retirement ObligationSales RevenueGift Card Breakage RevenueWarranty RevenueCost of Goods SoldInterest ExpenseLegal ExpenseSalaries ExpenseWarranty ExpenseGain on Litigation SettlementLoss on Litigation Settlement		Answer
	CashAccounts ReceivableInventoryEquipmentCopyrightAccrued CompensationDeferred Warranty RevenueEstimated Litigation LiabilityInterest PayableSalaries PayableSales Taxes PayableWarranty LiabilityNote PayableDiscount on Note PayableAsset Retirement ObligationSales RevenueGift Card Breakage RevenueWarranty RevenueCost of Goods SoldInterest ExpenseLegal ExpenseSalaries ExpenseWarranty ExpenseGain on Litigation SettlementLoss on Litigation Settlement		Answer
	To recognize warranty revenue

	Balance Sheet, Dec. 31	Year 1	Year 2
b.	Current liabilities
	AnswerCashAccounts ReceivableInventoryEquipmentCopyrightAccrued CompensationDeferred Warranty RevenueEstimated Litigation LiabilityInterest PayableSalaries PayableSales Taxes PayableWarranty LiabilityNote PayableDiscount on Note PayableAsset Retirement ObligationSales RevenueGift Card Breakage RevenueWarranty RevenueCost of Goods SoldInterest ExpenseLegal ExpenseSalaries ExpenseWarranty ExpenseGain on Litigation SettlementLoss on Litigation Settlement	Answer	Answer