Sales Warranty Accrual Method – On August 1, 2007 Pereira Corporation has ready for sale 2,000 Wiglow instruments. During the next 5 months, 1,600 Wiglows are sold at $460 each with a one-year warranty. Pereira estimates that the warranty cost on each Wiglow will probably average $10 per unit. In this period, Pereira incurred warranty costs of $9,200. Costs for 2008 were $7,000.

Required

1. Prepare the journal entries for the preceding transactions, using the sales warranty accrual method.

2. Show how the items would be reported on the December 31, 2007 balance sheet.

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