IMaxim Company introduced a new line of computers in 2018. The computers carry a two-year warranty against manufacturer's defects. Based on past experience with similar products, warranty costs are expected to be approximately 1% of sales during the first year of the warranty and approximately an additional 2% of sales during the second year of the warranty. Sales were $4,000,000 for the first year of the product's life and actual warranty expenditures were $18,000. Assume that all sales are on credit and all warranty expenditures are from cash.

1. Prepare journal entries to summarize the sales and any aspects of the warranty for 2018.
2. What amount should IMaxim Company report as a liability at December 31, 2018?