In 2011, BMJ Plumbing Company sold 300 water heaters for $850 each. The water heaters carry a two-year warranty for repairs. BMJ Plumbing estimates that repair costs will average 1 percent of the total selling price.
1. How much is recorded in the warranty liability account as a result of selling the water heaters during 2011, assuming no warranty service has yet been performed?
2. Prepare the necessary adjusting entry at December 31, 2011.