Refer to the data given in exercise 57-3. What amount of warranty expense will Forbes report during 2020? Does the warranty expense for the year equal the year's cash payments for warranties? Explain the relevant accounting principle as it applies to measuring warranty expense.

Exercise 7-3

General Motors of Canada Limited guarantees automobiles against defects for five years or \(160,000 \mathrm{~km}\), whichever comes first. Suppose GM Canada can expect warranty costs during the five-year period to add up to \(3 \%\) of sales Assume that Forbes Motors in Waterloo, Ontario, made sales of \(\$ 2,000,000\) on their Buick line during 2020. Forbes received cash for \(10 \%\) of the sales and took notes receivable for the remainder. Payments to satisfy customer warranty claims totalled \(\$ 50,000\) during 2020.

1. Record the sales, warranty expense, and warranty payments for Forbes. Ignore any reimbursement that Forbes may receive from GM Canada 2. Post to the Estimated Warranty Payable T-account. The beginning balance was \(\$ 40,000\). At the end of 2020, how much in estimated warranty payable does Forbes owe its customers?