Prepare journal entries that summarize sales

Question

Cupola Awning Corporation introduced a new line of commercial awnings in 2013 that carry a two-year warranty against manufacturer's defects. Based on their experience with previous product introductions, warranty costs are expected to approximate 3% of sales. Sales and actual warranty expenditures for the first year of selling the product were:

Sales	Actual Warranty Expenditures
$5,800,000	$51,000

Required:

1.1	Does this situation represent a loss contingency?
	X Yes No

1.2	How should Cupola account for it?

Estimated warranty liability is

and warranty expense is

in 2013.

2.	Prepare journal entries that summarize sales of the awnings (assume all credit sales) and any aspects of the warranty that should be recorded during 2013. All actual warranty expenditures were paid for in cash. (If no entry is required for a particular event, select "No journal entry required" in the first account field.)
	Event General Journal Debit Credit 1 Accounts receivable Sales 2 Warranty Estimated warranty liability 3 Estimated warranty liability Cash, wages payable, parts and supplies, etc. 3. What amount should Cupola report as a liability at December 31, 2013?