Ex.3Warranties. (9 points)

Miley Equipment Company sells computers for $1,500 each and also gives each customer a 2-year warranty that requires the company to perform periodic services and to replace defective parts. During 2014, the company sold 700 computers. Based on past experience, the company has estimated the total 2-year warranty costs as $30 for parts and $60 for labor. (Assume sales all occur at December 31, 2014.)

In 2015, Miley incurred actual warranty costs relative to 2014 computer sales of $10,000 for parts and $18,000 for labor.

Instructions

(a)Under an assurance-type warranty, prepare the entries to reflect the above transactions (accrual method) for 2014 and 2015.

(b)The transactions of part (a) create what balance under current liabilities in the 2014 statement of financial position and the non-current liabilities in the 2014 statement of financial position?