The Saturn Company offers a two$-$year manufacturer$$s warranty $($assurance$-$type warranty included in

the cost of their product$)$ that covers all parts, service, and maintenance in the first year. Additionally,

they offer a $3-$year extended warranty for $ $3,500.$ This warranty goes into effect at the end of the initial

two$-$year warranty. During $2017($their first year of business$),$ Saturn Company sold $5,500$ cars at $

$19,000$ per car $($all cash sales$).$ They estimate they will have warranty costs of $3\%$ of sales. They also

sold $400$ extended warranties.

$2.$ Please make the journal entries to record the sales and warranties.

$3.$ During $2017,$ assume Saturn incurred $$500,000$ of actual warranty expense for sales made in

$2017.$ Please make the correct journal entry.

$4.$ Assume Saturn sells another $5,800$ cars $($$$19,500$ per car$)$ in $2018.$ All cars still come with a two$-$

year manufacturer$$s warranty. They change their estimate of warranty costs to $2\%$ of sales and

they pay out $$2,000,000$ in warranty costs from $2017$ sales and $$400,000$ from $2018$ sales.

Please make the appropriate journal entry to adjust the warranty liability.

a$.$ Will they need to restate their financial statements because of this change or will they

merely need to note it in the notes to the financial statements?