In 2010, Carver Electronics Co. began selling a new computer that carried a 2-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 2010 and 2011 are as follows.

1. Give the necessary journal entries to record the liability at the end of 2010 and 2011.
2. Analyze the warranty liability account as of the year ended December 31, 2011, to see if the actual repairs approximate the estimate. Should Carver revise the manufacturer's warranty estimate? (Assume sales and repairs occur evenly throughout theyear.)

Transcribed Image Text:

2011 2010 Sales $850,000 $700,000 Actual warranty repairs 30,750 18,500