Computer Wholesalers restores and resells notebook computers on eBay. It originally acquires the notebook computers from corporations upgrading their computer systems, and it backs each notebook it sells with a 90-day warranty against defects. Based on previous experience, Computer Wholesalers expects warranty costs to be approximately 4% of sales. By the end of the first year, sales and actual warranty expenditures are $490,000 and $17,500, respectively1. Does this situation represent a contingent liability? Yes No2. Record the necessary entries in Journal Entries3. What is the balance in the Warranty Liability account after the entries in Part 2?

1. Yes

2. Dr Warranty expense$19,600

Cr Warranty Liability $19,600

Dr Warranty Liability$17,500

Cr Cash $17,500

3. $2,100

Explanation:

1. Yes, based on the information given this situation represent a contingent liability reason been that a contingent liability is tend to be probable because the amount can be estimated.

2. Preparation to Record the necessary entries in Journal Entries

Dr Warranty expense$19,600 (490,000*4%)

Cr Warranty Liability $19,600

Dr Warranty Liability$17,500

Cr Cash $17,500

3. Calculation for the balance in the Warranty Liability account after the entries in Part 2

Balance in the Warranty Liability=$19,600-$17,500

Balance in the Warranty Liability=$2,100

explanation:

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