PART B Derek Ltd. launched a new product on 1 January 2020. In first quarter of the year, their sales amounted to $3 million. Historically, similar products resulted in a lifetime warranty expense of 2% on sales. Actual warranty claims amounted to $40,000 during the quarter. In the second quarter of the year, 1 st March through to 30th June, total sales amounted to $4 million and actual warranty claims totalled $50,000. Required:

a) Prepare the journal entries to record the initial warranty liability and payment of warranty claims for both quarters. Calculate the closing balance of the warranty payable at the end of the second quarter.