We sell 1000 units on 1/12000 at $5000/unit, each warrantied for 2 years. Estimated Warranty cost on returned unit: $200/unit.

We sell 1000 units on 1/12000 at $5000/unit, each warrantied for 2 years. Estimated Warranty cost on returned unit: $200/unit. We expect 4% returns during 1st year of sale (2000), 6% reruns in 2nd year. (2001) 2000 actual warrant cost: $110,000. 2001 Actual warranty cost: $130,000. Account for these events using the

1 Accrual accounting method and

2 the warranty revenue method.