On September 1, 2010, Carolina Electronics Company has ready for sale 1,000 CD players. On October 1, 2010, 900 are sold at $50 each with a one year warranty. Carolina estimates that the warranty cost on each CD player sold will probably average $2 per unit. During the final three months of 2010, Carolina incurred warranty costs of $800, and in 2011 warranty costs were $1,000.

Required:
1. Prepare the journal entries for the preceding transactions, using the expense warranty accrual method.
2. Show how the preceding items would be reported on the December 31, 2010 balance sheet.