Silver Cloud manufactures and sells computers for $2,000 each, with a two-year parts and labour warranty. Based on prior experience, the company expects, on average, to incur warranty costs equal to 5% of sales. The business reports the following sales and warranty cost information:

________________Sales (units)                    Actual Warranty Costs

2015…………………...500…………………………….$30,000

2016…………………...600……………………………...46,000

2017…………………...525……………………………...53,500

Instructions

(a) Calculate the warranty expense for each year.

(b) Calculate the warranty liability at the end of each year.