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Montague Auto Repair specializes in the repair of foreign car transmissions. To encourage business, Montague...

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Accounting

Montague Auto Repair specializes in the repair of foreign car transmissions. To encourage business, Montague offers a 6-month warranty on all repairs. The following data are available for 2019:

Transmissions repaired, 2019 4,500
Expected frequency of warranty claims 0.09 per repair
Actual warranty claims, 2019 $110,000
Estimated warranty liability, 1/1/19 $25,000
Estimated cost of each warranty claim $250

Assume that warranty claims are paid in cash.

Required:
1. Compute the warranty expense for 2019.
2. Prepare the entry to record the payment of the 2019 warranty claims.
3. Conceptual Connection: What is the December 31, 2019, balance in the warranty liability account? Why has the balance in the warranty liability account changed from January 1, 2019?

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