Expense Warranty Accrual Method Clean All, Inc., sells washing machines with a three year warranty. In the past Clean All has found that in the year after sale, warranty costs have been 3% of sales; in the second year after sale, 5% of sales;and in the third year after sale, 7% of sales. The following data are also available:
|
Year |
Sales |
Warranty Expenditures |
|
2007 |
$500,000 |
$62,000 |
|
2008 |
650,000 |
82,000 |
|
2009 |
700,000 |
85,000 |
Required
1. Prepare the journal entries for the preceding transactions for 2007–2009, using the expense warranty accrual method. Closing entries are not required.
2. What amount would Clean All report as a liability on its December 31, 2009 balance sheet, assuming the liability had a balance of $88,200 on December 31, 2006?