The Athletic Accounting Company produces exercise equipment for accountants. Its main product, the pencil-pusher push-up platform, is sold with a three year warranty against defects. The company expects that 1% of the units will prove to be defective in the first year after they have been sold, 2% of the units will prove to be defective in the second year and 3% of the units will prove to be defective in the third year. The average cost to repair or replace a defective unit is expected to be $50. At the beginning of Year 1, there was a nil balance in the Warranty Liability account. The company's sales and warranty costs incurred were as follows: Year Units Sold Actual Cost Incurred Under Warranty Plan Required: 2005 10,000 units $6,000 2006 13,000 units $18,000 2007 18,000 units $45,000 1. Calculate the amount that should appear in the Warranty Obligation (Liability) account at the end of 2005; 2. Calculate the amount of warranty expense that should be recognized in 2006; 3. At the end of 2007, do the Company's estimates regarding warranty expense seem to have been too high, too low or just about right? For simplicity sake, assume all sales are made on December 31st of each year. Explain your reasoning