Lafayette Corporation, a client, requests that you compute the appropriate balance of its estimated liability for product warranty account for a statement as of June 30, 2011. Lafayette Corporation manufactures television components and sells them with a 6-month warranty under which defective components will be replaced without charge. On December 31, 2010, Estimated Liability for Product Warranty had a balance of $620,000. By June 30, 2011, this balance had been reduced to $120,400 by debits for estimated net cost of components returned that had been sold in 2010. The corporation started out in 2011 expecting 7% of the dollar volume of sales to be returned. However, due to the introduction of new models during the year, this estimated percentage of returns was increased to 10% on May 1. It is assumed that no components sold during a given month are returned in that month. Each component is stamped with a date at time of sale so that the warranty may be properly administered. The following table of percentages indicates the likely pattern of sales returns during the 6-month period of the warranty, starting with the month following the sale of components.
Percentage of Total
Month Following Sale Returns Expected
First . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30%
Second . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Third . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Fourth through sixth€”10% each month . . . . . . . . . . . . . . . . . 30
100%
Gross sales of components were as follows for the first six months of 2011:

The corporation€™s warranty also covers the payment of freight cost on defective components returned and on the new components sent out as replacements. This freight cost runs approximately 5% of the sales price of the components returned. The manufacturing cost of the components is roughly 70% of the sales price, and the salvage value of returned components averages 10% of their sales price. Returned components on hand at December 31, 2010, were thus valued in inventory at 10% of their original sales price. Instructions: Using the data given, prepare a schedule for arriving at the balance of the estimated liability for product warranty account as of June 30, 2011, and give the proposed adjustingentry.

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Month Amount Month Amount January February March $4200,000 Apri May June 4700,000 3,900,000 $3,250,000 2.400,000 1,900,000