On August 1, 2010, Pereira Corporation has ready for sale 2,000 Wiglow instruments. During the next 5 months, 1,600 Wiglows are sold at $460 each with a one-year warranty. Pereira estimates that the warranty cost on each Wiglow will probably average $10 per unit. In this period, Pereira incurred warranty costs of $9,200. Costs for 2011 were $7,000.
1. Prepare the journal entries for the preceding transactions, using the sales warranty accrual method.
2. Show how the items would be reported on the December 31, 2010 balance sheet.