Answer the following question.
During 2012, NASA Co. produced a new line of computers that carry a three-year warranty against manufacturer's defects. Based on industry experience, NASA Co. estimated warranty costs at 1% of sales in the year of sale, 2% in the year after sale, and 3% in the second year after sale.
Sales and actual warranty expenditures for the first three-year of operations were as follows:
Year Sales Actual Warranty Expenditures (paid in cash)
2012 $ 300,000 $5,000
2013 750,000 12.000
2014 2.000.000 40.000
Total $3,050,000 $57,000
Required:
1- Prepare journal entries necessary to record the warranty liability and warranty expenditure in each year.
2- What amount should NASA report as a balance of the Warranty Liability account at December 31, 2014?