Question: Question 3: (12 marks) Shelford Cutlery extends a lifetime replacement warranty on all units sold. Using past experience, the company estimates that 0.75% of units

Question 3: (12 marks) Shelford Cutlery extends a lifetime replacement warranty

Question 3: (12 marks) Shelford Cutlery extends a lifetime replacement warranty on all units sold. Using past experience, the company estimates that 0.75% of units sold will be returned and require replacement at an average cost of $105 per unit. On January 1,2025 , the balance in Shelford's Warranty Liability account was $16,400. During 2025 , sales totalled $3,712,000 or 11,600 units. The actual number of units returned and replaced was 88 . Required: a) Prepare the journal entry to accrue the estimated warranty costs for 2025. b) Prepare the summary journal entry to record the warranty contracts honored during 2025 for units that were returned for replacement. c) Calculate the balance in the Warranty Liability account at December 31, 2025. d) What is the amount of warranty expense that will appear on the income statement for the year ended December 31,2025

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