On January 1, 2021, the ledger of Accardo Company contains the following liability accounts.

Accounts Payable ............................. $52,000
HST Payable .......................................... 7,700
Unearned Revenue ............................ 16,000

During January, the following selected transactions occurred.

Jan. 2 Borrowed $27,000 from Canada Bank on a three-month, 6%, $27,000 note.

5 Sold merchandise for cash totalling $20,500 plus 13% HST. Ignore any cost of goods sold entry.

12 Performed services for customers who had made advance payments of $10,000. The payment included HST of $1,151. (Credit Service Revenue.)

14 Paid Receiver General for HST invoiced in December 2020 ($7,700).

20 Sold 900 units of a new product on credit at $50 per unit, plus 13% HST.

This new product is subject to a one-year warranty.

25 Sold merchandise for cash totalling $12,500 plus 13% HST.

Instructions

a. Journalize the January transactions.

b. Journalize the adjusting entries at January 31 for (1) the outstanding notes payable, and (2) estimated warranty liability, assuming warranty costs are expected to equal 7% of sales of the new product sold January 20.

c. Prepare the current liabilities section of the balance sheet at January 31, 2021. Assume no change in accounts payable.

Explain why warranty liabilities are recorded before a customer has any issues with the product.