In Year 1. Carpenter Inc. sells a product that carries a separate, three-year warranty for parts and labor on service for $50 per product. Sales of products totaled $50,000 where customers also purchased the S50 warranty, result- ing in total warranty sales of $5,000. On the basis of experience, it is estimated that for the three-year warranty, costs are 2% of sales for parts and 3% for labor and overhead. Actual warranty service costs were $1,000 in Year I and $800 in Year 2. The company uses straight-line recognition of warranty revenue. For simplification, assume that sales occur at the first of the year. Required Record the journal entries required for the following. 1. Sales of the products and warranties in Year 1. 2. Incurred cash warranty costs and recognition of warranty revenue in Year 1. 3. Incurred cash warranty costs and recognition of warranty revenue in Year 2. b. What liability would be reported on the balance sheet at the end of Year 1 and Year 2? a. Note that the warranty costs information is redundant in the case of service (extended warranty) type warranties.

In Year 1. Carpenter Inc. sells a product that carries a separate, three-year warranty for parts and labor on service for $50 per product. Sales of produets totaled $50,000 where customers also purchased the $50 warranty. resulting in total warranty sales of $5,000. On the basis of experience, it is estimated that for the three-year warranty, costs are 2% of sales for parts and 3% for labor and overhead. Actual warranty service costs were $1,000 in Year 1 and $800 in Year 2 . The company uses straight-line recognition of warranty revenue. For simplification, assume that sales occur at the first of the year. Required a. Record the journal entries required for the following. 1. Sales of the products and warranties in Year 1. 2. Incurred cash warranty costs and recognition of warranty revenue in Year 1. 3. Incurred cash warranty costs and recognition of warranty revenue in Year 2. b. What liability would be reported on the balance sheet at the end of Year 1 and Year 2? Note that the warranty costs information is redundant in the case of service (extended warranty) type warranties