Operating Liabilities Problem

a. Beach Bum Surfing made $125,000 of sales in 2007. It guarantees its surf boards against defects for 2 years and estimates that warranty costs are 10% of sales. What journal entry must Beach Bum Surfing record in 2007 related to the estimated warranties?

Date	Accounts	Debit	Credit

b. Continued from above - Suppose the warranty payable was equal to $17,500 at the end of 2006. In 2007 Beach Bum Surfing paid $10,550 to satisfy warranty claims. What was the balance of the warranty payable at the end of 2007?