Olden Motor Vehicles Ltd offers a 12-month warranty for the sale of used motor vehicles. On 1 July 2018, there was a credit balance of $70 000 in its warranty provision account. During the year ended 30 June 2019, Olden Motor Vehicles incurred $65 000 in warranty costs, of which $30 000 was in the form of inventory and $35 000 was for labour costs. At 30 June 2019, Olden Motor Vehicles estimated its liability for unexpired warranty contracts as $75 000.

Required

(a) Prepare journal entries to record warranty claims during the period and end-of-period adjustments to the warranty provision account. (Hint: Credit wages payable for the labour costs.)

(b) Why do entities offer a warranty?