Hardin Widget Manufacturing began operations in January 2011. Hardin sells widgets that carry a two-year manufacturer's warranty against defects in workmanship. Hardin's management project that 2% of the widgets will require repair during the first year of the warranty while approximately 6% will require repair during the second year of the warranty. The widgets sell for $400 each. The average cost to repair a widget is $50. The company sells 60% of the widgets to retail customers who must pay a 6% sales tax. Sales and warranty information for 2011 and 2012 are as follows:
2011: Sold 200 widgets on account; incurred warranty expenditures of $300.
2012: Sold 300 widgets on account; actual warranty expenditures were $500.
1. Prepare journal entries that summarize the sales and any aspects of the warranty for 2011.
2. Prepare journal entries that summarize the sales and any aspects of the warranty for 2012.
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