To support herself while attending school Young Shen sold stereo
To support herself while attending school, Young Shen sold stereo systems to other students. During the first year of operations, Shen purchased the stereo systems for $120,000 and sold them for $230,000 cash. She provided her customers with a one-year warranty against defects in parts and labor. Based on industry standards, she estimated that warranty claims would amount to 2 percent of sales. During the year she paid $2,450 cash to replace a defective tuner.

Required
Prepare an income statement and statement of cash flows for Shen’s first year of operation. Based on the information given, what is Shen’s total warranties liability at the end of the accounting period?

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