Exercise $7-12($Static$)$ Other accrued liabilities$$warranties LO $7-5$

$[$The following information applies to the questions displayed below.$]$

Prist Company had not provided a warranty on its products, but competitive pressures forced management to add this feature at the beginning of $2022.$ Based on an analysis of customer complaints made over the past two years, the cost of a warranty program was estimated at $0\mathrm{.}5\%$ of sales. During $2022,$ sales totaled $$4,100,000.$ Actual costs of servicing products under warranty totaled $$18,700.$

Exercise $7-12($Static$)$ Part a $-$ Horizontal Model

Required:

a$-1.$ Use the horizontal model to show the effect of having the warranty program during $2022.$ Indicate the financial statement effect.

Note: Enter decreases with a minus sign to indicate a negative financial statement effect.

a$-2.$ Record the journal entry to show the effect of having the warranty program during $2022.$

Note: If no entry is required for a transaction$/$event$,$ select $"$No journal entry required" in the first account field.

b$.$ What type of accrual adjustment should be made at the end of $2022?$

Multiple Choice

$$ At the end of $2022$ an adjustment should be made to decrease the warranty expense already recognized to the amount of cost incurred, and to accrue additional estimated warranty expense related to other items sold in $2022$ that are still under warranty. No accrual adjustment is required.

$$ At the end of $2022$ an adjustment should be made to increase the warranty expense already recognized to the amount of cost incurred, and to accrue additional estimated warranty expense related to other items sold in $2022$ that are still under warranty.