When Boyd Pools installs a pool, it provides a three-year warranty (from the date of the sale) for any repairs needed that are not considered general maintenance. If a pool should need to be repaired in the first three years after the sale, Boyd will repair the pool for a cost of up to $1,000. Because this is normally a significant expense, the accountant insists that Boyd record an estimated warranty liability at the end of every year before the financial statements are prepared. On average, Boyd spends $400 per pool to fulfill its warranty obligations over the life of the warranty. For the year ended June 30, 2011, the accountant made the appropriate entry to record that liability based on sales and installations for the year of 360 pools. On January 4, 2012, Boyd paid $750 to an independent contractor to repair a pool for one of its customers, who had purchased the pool on March 15, 2011.
1. Enter the transaction into the accounting equation to record the estimated warranty liability at June 30, 2011.
2. Enter the transaction into the accounting equation to record the payment of the repair bill on January 4, 2012. For the year ended June 30, 2012, what effect did this payment have on the financial statements of Boyd Pools?