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In the most recent year of operations, Bradley's Video Games sold merchandise costing $25,000 for $ 75,000. All merchandise was sold under a one-year warranty. At the time of sale, Bradley estimated that warranty claims would amount to 3% of sales. During the year, Bradley replaced defective merchandise for $1,290. All transactions were cash transactions.
Required:
a. Prepare journal entries to record all transactions related to the warranty.
b. Based solely on the above information, determine Bradley's operating income for the year.
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