On January 1, 2012, Hopewell Company began a warranty program to stimulate sales. It is estimated that 5% of the units sold will be returned for repair at an estimated cost of $30 per unit. Sales and warranty figures for the three years ended December 31 are as follows:

Instructions
(a) Calculate the warranty expense for each year and warranty liability at the end of each year.
(b) Record the warranty transactions for each year. Credit Repair Parts Inventory for the actual warranty costs.
(c) To date, what percentage of the units sold have been returned for repair under warranty? What has been the average actual warranty cost per unit for the three-year period?
TAKING IT FURTHER
Assume that at December 31, 2014, management reassesses its original estimates and decides that it is more likely that the company will have to service 7% of the units sold in 2014. Management also determines that the average actual cost per unit incurred to date (as calculated in c above) is more reasonable than its original estimate. What should be the balance in the warranty liability account at December 31, 2014?

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Sales (units) Sales price per unit Units returned for repair under warranty Actual warranty costs 2012 1,500 $150 75 $2,250 2013 1,700 $120 90 $2,400 2014 1,800 $125 105 $2,640