Howard Company sells automatic can openers under a 90-day warranty for defective merchandise for Shs. 40 each.Based on past experience, Howard Company estimates that 2% of the units sold will become defective during the warranty period. Management estimates that the average cost of replacing a defective unit is Sh. 15. The units sold and units defective that occurred during the last two months of 2014 are as follows:

Month Units Units Defective

Sold Prior to December 31

September 35,000 500

October 33,000 350

Required:

Give entries to record sales for the units sold in September and October.(2 marks)

Prepare the journal entry to record the estimated warranty expense.(2 marks)

Give the journal entry to record the honouring of 450 warranty contracts in January at an average cost of Shs 12.