On September 1, 2010, Carolina Electronics Company has ready for sale 1,000 CD players. On October 1, 2010, 900 are sold at $50 each with a one-year warranty. Carolina estimates that the warranty cost on each CD player sold will probably average $2 per unit. During the final three months of 2010, Carolina incurred warranty costs of $800, and in 2011 warranty costs were $1,000.

Required

1. Prepare the journal entries for the preceding transactions, using the expense warranty accrual method.

2. Show how the preceding items would be reported on the December 31, 2010 balance sheet.