Waymire Company sells a motor that carries a 60-day unconditional warranty against product failure.

Waymire estimates that between the sale and lapse of the product warranty, 2% of the 69,000 units sold in this period will require repair at an average cost of $50 per unit. The warranty liability for this product has a beginning of the period balance of $30,000 and $27,000 has already been spent on warranty repairs in the period.

A. How much warranty expense must Waymire report in its income statement and what amount of warranty liability must it report on its balance sheet for this year?

B. What analysis issues do we need to consider with respect to the amount od reported warranty liability.