In 2014, Carver Electronics Co. began selling a new computer that carried a two-year warranty against defects. Based on the manufacturer's recommendations, Carver projects estimated warranty costs (as a percentage of dollar sales) as follows:

First year of warranty . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4%

Second year of warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7%

Sales and actual warranty repairs for 2014 and 2015 are as follows.

1. Give the necessary journal entries to record the liability at the end of 2014 and 2015, assuming that there were no collections of previously reserved balances.
2. Analyze the warranty liability account as of the year ended December 31, 2015, to see if the actual repairs approximate the estimate. Should Carver revise the manufacturer's warranty estimate? (Assume sales and repairs occur evenly throughout the year.)

Transcribed Image Text:

2015 2014 850,000 $700,000 18,500 Sales 30,7501