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?