To support herself while attending school, Kim Lee sold stereo systems to other students. During her first year of operation, she sold systems that had cost her \(\$ 95,000\) cash for \(\$ 140,000\) cash. She provided her customers with a one-year warranty against defects in parts and labor. Based on industry standards, she estimated that warranty claims would amount to 6 percent of sales. During the year she paid \(\$ 200\) cash to replace a defective tuner.

Required
Prepare an income statement and statement of cash flows for Lee's first year of operation. Based on the information given, what is Lee's total warranties liability at the end of the accounting period?