Problem II (121)- Warranties that requires the company to perform periodic services and to replace defective parts. During 2006, the company James Equipment Company sells computers for $1,500 each and also gives each customer a 2-year warranty $30 for parts and $60 for labor. (Assume sales all occur at December 31, 2006.) sold 700 computers, Based on past experience, the company has estimated the total 2-year warranty costs as In 2007, James incurred actual warranty costs relative to 2006 computer sales of $10,000 for parts and $18,000 for labor. Instructions (a) (rer the expense warranty treatment, give the entries to reflect the above transactions (accrual method) for 2006 and 2007. (b) Under the cash basis method, what are the Warranty Expense balances for 2006 and 2007? (c) The transactions of part (a) create what balance under current liabilities in the 2006 balance sheet? Solution Problem II (121) (a) Date Account Name 2006 Ref Debit Credit (a) 2006: 2007: (b) 2006: 2007