Part 1:
Okanagan Refrigeration manufactures and markets products throughout Canada. It was disclosed in notes to the company’s financial statements that estimated warranty costs are accrued at the time products are sold. Assume that in 2014 warranty costs are estimated at $315,000 and that the related warranty work was actually paid for during 2015.

Required
Explain how financial statements are affected due to warranties in 2014 and 2015.

Part 2:
Assume that Dobush Enterprises collected $1,950,000 during 2014 for magazines that will be delivered in future years. During 2015, Dobush delivered magazines based on these subscriptions amounting to $1,835,000.

Required
Explain how financial statements are affected in 2014 and 2015 by these subscriptions.