Question: In 2012, 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

In 2012, 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 2012 and 2013 are as follows.

......................................................................2013............. 2012

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $850,000........ $700,000

Actual warranty repairs . . . . . . . . . . . . . . . . . . . . . . . . . 30,750........... 18,500

1. Give the necessary journal entries to record the liability at the end of 2012 and 2013.

2. Analyze the warranty liability account as of the year ended December 31, 2013, to see if the actual repairs approximate the estimate. Should Carver revise the manufacturer's warranty estimate? (Assume sales and repairs occur evenly throughout the year.)

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