Exercise 13-15 (Algo) Warranties [LO13-5, 13-6]

Cupola Awning Corporation introduced a new line of commercial awnings in 2021 that carry a two-year warranty against manufacturers defects. Based on their experience with previous product introductions, warranty costs are expected to approximate 2% of sales. Sales and actual warranty expenditures for the first year of selling the product were:

Sales	Actual Warranty Expenditures
$5,730,000	$53,750

Required: 1. Does this situation represent a loss contingency? 2. Prepare journal entries that summarize sales of the awnings (assume all credit sales) and any aspects of the warranty that should be recorded during 2021.

• 1) Record the 2021 sales.

• 2

  Record the accrued liability and expense.

• 3

  Record the actual expenditures.

3. What amount should Cupola report as a liability at December 31, 2021?