Recording and Reporting Warranties

During Year 1, Ward Company introduced a new product carrying a two-year warranty against defects, which is included in the selling price of the product. The estimated warranty costs are 2% of sales within the first 12 months following the sale and 4% in the second 12 months following the sale. Sales and actual warranty expenditures for the years ended December 31 of Year 1 and Year 2 follow.

		Actual Warranty
	Sales	Expenditures
Year 1	$840,000	$12,600
Year 2	1,400,000	42,000
	$1,600,000	$39,000

Required

a. Record the entries in Year 1 to (1) record actual cash warranty costs and (2) accrue for warranties at year-end.

b. At December 31 Year 1, what would Ward report as estimated warranty liability on its balance sheet? $

c. Record the entries in Year 2 to (1) record actual cash warranty costs and (2) accrue for warranties at year-end.

d. At December 31 Year 2, what would Ward report as estimated warranty liability on its balance sheet? $

Date Account Name Dr. Cr. a. Dec. 31 Year 1 To record actual warranty costs. Dec. 31 Year 1 To accrue for warranty expense. \begin{tabular}{|l|l|l|l|} \hline \multicolumn{1}{|c|}{ Date } & \multicolumn{1}{|c|}{ Account Name } & Dr. & Cr. \\ \hline Dec. 31 Year 2 & & & \\ \hline & & & \\ \hline & To record actual warranty costs. & & \\ \hline Dec. 31 Year 2 & & & \\ \hline & & & \\ \hline & To accrue for warranty expense. & \\ \hline \end{tabular}