Tomaco is a machine tool maker. The company makes and sells a home electrical generator which comes with a two-year assurance-type warranty. The company sold 960 units of the electrical generator at an average price of $1,800 per unit in 2011. The company estimated that warranty costs would average $219 per generator over two years. Actual costs incurred by Tomaco to honour warranty claims in 2011 totalled $84,500 ($70,000 for labor, $12,000 for parts and the rest cash).

1. Prepare journal entries to record the sales of electrical generators in 2011 and the use of resources used to honour warranty claims. )

2. Prepare a journal entry to record the warranty liability at the end of 2011. (8 marks)

3. Assume Tomaco accounted for its warranty as the service-type. The two-year warranty, if sold separately, would have a retail price of $400 per electrical generator. The 960 electrical generators had 16 months left on their warranties at the end of 2011 on average. Prepare all journal entries for 2011.