Question: In 2016, Cap City Inc. introduced a new line of televisions that carry a two-year warranty against manufacturer's defects. Based on past experience with similar products, warranty costs are expected to be approximately 1% of sales during the first year of the warranty and approximately an additional 3% of sales during the second year of the warranty. Sales were $6,000,000 for the first year of the product's life and actual warranty expenditures were $29,000. Assume that all sales are on credit. Required:
1. Prepare journal entries to summarize the sales and any aspects of the warranty for 2016.
2. What amount should Cap City report as a liability at December 31, 2016?