Rob Thomas, the controller of MatchBox 20 (Match), has a disease (in other words, he is unwell) and won't be able to report for work today.In his absence, you (the assistant controller) must prepare some adjusting journal entries and respond to questions raised by the CEO of Match, Mr. Yale.It is March 8, 2008, and you are working on the financial statements of Match for its year ended December 31, 2007.

The following information is available from Thomas's files:

• Match offers a 1-year warranty on its main product, the "tone-deff" hearing aid.Sales were 2,500,000 units in 2007.Match's estimates are that 2% of the units sold will be returned for repairs within the warranty period (up from 1.5% from the prior year).Repairs are estimated at $20.00 per unit returned.
• During 2007, 70,000 units were turned in for repairs, and Match spent $1,295,000 repairing them.
• You note that the general ledger has a balance in its warranty expense account of 1.295 million, and also has a balance of $600,000 in its accrued warranty liability account (unadjusted from the balance on its 2006 financial statements).
• In 2006, a customer injured himself when he wired his hearing aid to a 10,000 watt stereo system.In January 2007, his lawyer filed for a suit against Match claiming that they did not adequately warn their customers against such activities; he is seeking damages from hearing loss of $15 million.
• In-house counsel for Match considers the lawsuit to be frivolous and expects it to be dismissed.
• In March 2007, Match was named as a defendant in a patent infringement suit.In-house counsel believes that it is probable that Match will need to pay damages, and estimates that Match will need to pay between $1 million and $1.5 million to settle the suit.

Required:show any journal entries that might be required from the above information, and briefly discuss any additional disclosures required under GAAP.