Question $5$: $(10$ marks$)$

Shelford Cutlery extends a lifetime replacement warranty on all units sold. Using past

experience, the company estimates that $0\mathrm{.}75\%$ 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 $31,2025?$