Prepare journal entries necessary to record the warranty

Reference no: EM131306351

Answer the following question.

During 2012, NASA Co. produced a new line of computers that carry a three-year warranty against manufacturer's defects. Based on industry experience, NASA Co. estimated warranty costs at 1% of sales in the year of sale, 2% in the year after sale, and 3% in the second year after sale.

Sales and actual warranty expenditures for the first three-year of operations were as follows:

Year Sales Actual Warranty Expenditures (paid in cash)

2012 $ 300,000 $5,000

2013 750,000 12.000

2014 2.000.000 40.000

Total $3,050,000 $57,000

Required:

1- Prepare journal entries necessary to record the warranty liability and warranty expenditure in each year.

2- What amount should NASA report as a balance of the Warranty Liability account at December 31, 2014?

Reference no: EM131306351

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