In 2007 Hampton Office Supply began selling a new computer that carried a 2-year warranty against defects.

Question:

In 2007 Hampton Office Supply began selling a new computer that carried a 2-year warranty against defects. Based on the manufacturer's recommendations, Hampton projects estimated warranty costs (as a percentage of dollar sales) as follows:

First year of warranty. . . . . . . . . . . . . . . . . . . . . . 3%

Second year of warranty. . . . . . . . . . . . . . . . . . . .9%

Sales and actual warranty repairs for 2007 and 2008 are as follows.

In 2007 Hampton Office Supply began selling a new computer

1. Give the necessary journal entries to record the liability at the end of 2007 and 2008.
2. Analyze the warranty liability account as of the year ended December 31, 2008, to see if the actual repairs approximate the estimate. Should Hampton revise the manufacturer's warranty estimate? (Assume sales and repairs occur evenly throughout theyear.)