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Inline Incorporated manufactures skates and equipment for in-line skating. The company offers a one-year warranty on all products. During 2012, the company recorded net sales of $3,887.4 million. Historically, about 2% of all sales are returned under warranty and the cost of repairing and or replacing goods under warranty is about 50% of retail value. Assume that at the start of the year Inline's balance sheet included an accrued warranty liability of $16.9 million and at the end of the year, the accrued warranty liability balance was $13.0 million.  How should Inline account for warranty claims?

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