Western Yard Equipment offers warranties on all its lawn mowers. It estimates warranty expense at 1.4 percent of sales. At the beginning of 2016, the Estimated Warranty Payable account had a credit balance of $2,200.
During the year, Western Yard Equipment had $580,000 of sales and had to pay out $8,950 in warranty payments for repairs.
1. Prepare the required journal entries to record warranty expense and payments. Use December 31 for the journal entry date.
2. What is the balance of the warranty liability at the end of 2016? Indicate whether the balance is a debit or a credit.