On September 1, 2013, Carolina Electronics Company has 900 Blu-ray players ready for sale. On October 1, 2013, 750 are sold at $110 each with a 1-year warranty. Carolina estimates that the warranty cost on each Blu-ray player sold will probably average $9 per unit. During the final 3 months of 2013, Carolina incurred warranty costs of $4,120, and in 2014 warranty costs were $2,630.

Requirements:

1. Prepare the journal entries for the preceding transactions using the expense warranty accrual method.

2. Show how the preceding items would be reported on the December 31, 2013, balance sheet.

3. Prepare the journal entries for the preceding transactions using the modified cash basis method.