In 2017, Mare Company began selling a new calculator that carried a two year warranty against defects.

Mare projected the estimated warranty cost (as a percent of sales) as follows:

First year of warranty 4%

Second year of warranty 10%

Sales and actual warranty repairs were:

	2017	2018
Sales	5,000,000	9,000,000
Actual warranty repairs	200,000	560,000

Required:

1 ) Prepare the entries in connection with the warranty using the expense as incurred approach for 2017 and 2018.

To record 2017 warranty expense
Warranty Expense
Cash

2 ) Prepare the entries in connection with the warranty using the accrual approach for 2017 and 2018.

To record 2017 warranty expense
Warranty Expense
Estimated warranty liability
To record 2017 actual warranty expense
Estimated warranty liability
Cash
To record 2018 warranty expense
Warranty expense
Estimated warranty liability
To record the 2018 actual warranty expense
Estimated warranty liability
Cash

3 ) Determine the estimated warranty liability on December 31, 2018.

Estimated Liability for 2018
Warranty Expense
2017
2018
Actual warranty expense
2017
2018
Estimated warranty liability