Duong-Burnett Products introduced a new line of commercial sprinklers in 2023 that carry a one-year warranty against manufacturer’s defects. Because this was the first product for which the company offered a warranty, trade publications were consulted to determine the experience of others in the industry. Based on that experience, warranty costs were expected to approximate 2% of sales. Sales of the sprinklers in 2023 were $2,500,000. Accordingly, the following entries relating to the contingency for warranty costs were recorded during the first year of selling the product:

In late 2024, the company’s claims experience was evaluated and it was determined that claims were far more than expected—3% of sales rather than 2%.

Required:
1. Assuming sales of the sprinklers in 2024 were $3,600,000 and warranty expenditures in 2024 totaled $88,000, prepare any journal entries related to the warranty.
2. Now, instead, assume that sales of the sprinklers were discontinued after 2023, prepare any journal entries in 2024 related to the warranty.

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Accrued liability and expense Warranty expense ( 2% x $2,500,000)... Warranty liability........ Actual expenditures (summary entry).. Warranty liability......... Cash (or salaries payable, parts and supplies, etc.).. 50,000 23,000 50,000 23,000