Engineering Group, Inc., is a major British international engineering firm with the following liabilities shown on its 1999 balance sheet (shown in millions of pounds):

Loans and other borrowings 392.0 Other creditors 31.0 Provisions for liabilities and charges 130.5 Required

a. Where should warranty obligations, if any, be included in these accounts?

b. A note to the financial statements, titled “Provisions for Liabilities and Charges,”disclosed the following items:

Recognition of post-retirement benefits 32.9 Exchange rate adjustments 15.2 New subsidiaries (reorganization costs) 71.4 Profit and loss account 11.0 Total 130.5 Where are warranty obligations, if any, included in these accounts?

c. Why doesn’t Engineering Group make any more explicit mention of warranty obligations?

d. Use the accounting equation to record the following warranty obligations of an engineering consulting firm:

i. Estimated warranty expenses of 10% for the prior year’s billings of $50 million.

ii. Warranty claim of $1.5 million for bridge repairs.

iii. Payment of bridge warranty claim totaling $1.6 million.