Lafayette Corporation, a client, requests that you compute the appropriate balance of its estimated liability for product warranty account for a statement as of June 30, 2011. Lafayette Corporation manufactures television components and sells them with a 6-month warranty under which defective components will be replaced without charge. On December 31, 2010, Estimated Liability for Product Warranty had a balance of $620,000. By June 30, 2011, this balance had been reduced to $120,400 by debits for estimated net cost of components returned that had been sold in 2010. The corporation started out in 2011 expecting 7% of the dollar volume of sales to be returned. However, due to the introduction of new models during the year, this estimated percentage of returns was increased to 10% on May 1. It is assumed that no components sold during a given month are returned in that month. Each component is stamped with a date at time of sale so that the warranty may be properly administered. The following table of percentages indicates the likely pattern of sales returns during the 6-month period of the warranty, starting with the month following the sale of components.
Percentage of Total
Month Following Sale Returns Expected
First . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30%
Second . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Third . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Fourth through sixth€”10% each month . . . . . . . . . . . . . . . . . 30
100%
Gross sales of components were as follows for the first six months of 2011:

The corporation€™s warranty also covers the payment of freight cost on defective components returned and on the new components sent out as replacements. This freight cost runs approximately 5% of the sales price of the components returned. The manufacturing cost of the components is roughly 70% of the sales price, and the salvage value of returned components averages 10% of their sales price. Returned components on hand at December 31, 2010, were thus valued in inventory at 10% of their original sales price. Instructions: Using the data given, prepare a schedule for arriving at the balance of the estimated liability for product warranty account as of June 30, 2011, and give the proposed adjustingentry.

Month Amount Month Amount January February March $4200,000 Apri May June 4700,000 3,900,000 $3,250,000 2.400,000 1,900,000