Jammerz Corp. sells mp3 players. Jammerz provides all customers a two-year warranty. The warranty guarantees free repair of any defects reported during the warranty period. During 2008, Jammerz sold 100,000 mp3 players for $325 each. From analysis of past warranty records, management estimates 12% of units sold will be returned for repair during the warranty period. Jammerz expects the cost to repair a unit to be $14. The estimated liability for Warranties account balance as of January 1, 2008 was $120,000. During 2008, Jammerz incurred warranty repair costs of $150,000.
a. Prepare all journal entries to record the events related to 2008 warranty transactions.
b. Compute the calendar year-end Estimated Liability for Warranties account balance.