Exercise 7-7 Effect of warranty obligations and payments on financial statements The Ja-San Company provides a 120-day parts-and-labor warranty on all merchandise it sells. Ja-San estimates the warranty expense for the current period to be $1,250. During the period a customer returned a product that cost $920 to repair. Required a. Show the effects of these transactions on the financial statements using a horizontal state- ments model like the example shown here. Use a + to indicate increase, a for decrease, and NA for not affected. In the Cash Flow column, indicate whether the item is an operating ac- tivity (OA), investing activity (IA), or financing activity (FA). Assets = Liab. + Equity Rev. - Exp. = Net Inc. Cash Flow b. Discuss the advantage of estimating the amount of warranty expense