Problem 3 Warranty Expense 20 minutes 9 marks

Ollivanders Inc. sells wands and offers a lifetime replacement warranty on all units sold, meaning any defective wants are replaced with a new one. The companys past experience shows that 2% of wands sold will be replaced under warranty. In 2020, Ollivanders Inc. sold 2,500 wands at a price of $150 each. Each wand costs Ollivanders $95 to produce. In 2020, 30 wands were replaced under warranty.

Required:

1. Prepare the journal entry to record the warranty expense for 2020 (use Dec 31, 2020 as a date)

2. Prepare the journal entry to record wands replaced under warranty for 2020 (use Dec 31, 2020)

3. Assume the estimated warranty liabilities account was at zero at the beginning of 2020. What is the balance of the estimated warranty liability account on December 31 after all the above entries were completed?