1. **Problem Statement:** Prepare journal entries for warranty costs in 2027 based on new sales and claims experience. 2. **Given Data:** - 2026 sales = 2,500,000 - 2026 warranty expense = 2% × 2,500,000 = 50,000 - 2026 actual warranty expenditures = 23,000 - 2027 sales = 3,600,000 - 2027 actual warranty expenditures = 88,000 - Revised warranty rate for 2027 = 3% 3. **Step 1: Calculate 2027 warranty expense based on new rate and sales:** $$\text{Warranty Expense}_{2027} = 3\% \times 3,600,000 = 0.03 \times 3,600,000 = 108,000$$ 4. **Step 2: Record 2027 warranty expense and liability:** Debit Warranty Expense 108,000 Credit Warranty Liability 108,000 5. **Step 3: Record actual warranty expenditures in 2027:** Debit Warranty Liability 88,000 Credit Cash (or other accounts) 88,000 6. **Step 4: If sales discontinued after 2026, no new warranty expense for 2027 sales. Only record actual expenditures reducing liability:** Debit Warranty Liability 88,000 Credit Cash (or other accounts) 88,000 7. **Summary:** - When sales continue, warranty expense is based on new sales and revised rate. - When sales discontinued, no new warranty expense, only actual expenditures reduce liability. This completes the required journal entries for warranty costs in 2027.