Natty Limited sells custom made jewellery which are sold with a 3 year warranty. The estimated warranty cost, based on experience, is 3% of sales the year after the sale, 2% of sales the second year after the sale and 1% of sales the third year after the sale. The companys total sales for 2019 were $1.2 million. Actual warranty work were performed in 2019 for a cost of $47,000. The opening balance in the Warranty Liability account as of January 1, 2019 was $60,000.

Required:

a. Prepare the journal entries for the warranty accrual and the actual warranty incurred for 2019 using the Expense Method. (6 marks)

b. What is the amount of the Warranty Liability to be reported on the Balance Sheet as at December 31, 2019 based on the Expense method? (2 marks)

c. NOW assume the Revenue Method. Of the $1.2 million sale, $200,000 represented warranty. $47,000 was incurred in 2019 for warranty work. Prepare the journal entries to record the sale of jewellery, actual warranty work incurred and revenue to be recognized in 2019? (6 marks)