Boulware Company manufactures and sells electronic games. Each game costs $25 to produce, sells for $45, and carries a warranty that provides for free replacement if it fails during the two years following the sale. In the past, 7 percent of the games sold had to be replaced under the warranty. During July, Boulware sold 13,000 games, and 1,400 games were replaced under the warranty.
1. Prepare a journal entry to record the estimated liability for product warranties during the month.
2. Prepare a journal entry to record the games replaced under warranty during the month.