3-a. Compute the ratio of the warranty expense to net revenues for the three years. The Standard warranty liability had a balance of $199 at the beginning of 2016. (Round percentage answers to 2 decimal places (i.e., 0.1243 should be entered as 12.43).)
International Business Machines (IBM) is a leading provider of computer products and services. The company is known for its hardware products but has focused on providing information technology services in recent years. IBM provides standard warranties and extended warranties with the sale of its products. The company's note on significant accounting policies is as follows: The company offers warranties for its hardware products that generally range up to three years, with the majority being either one or three years. Estimated costs for standard warranty terms are recognized when revenue is recorded for the related product. The company estimates its warranty costs standard to the product based on historical warranty claim experience and estimates of future spending, and applies this estimate to the revenue stream for products under warranty, Estimated future costs for warranties applicable to revenue recognized in the current period are charged to cost of sales. The warranty liability is reviewed quarterly to verify that it properly reflects the remaining obligation based on the anticipated expenditures over the balance of the obligation period. Revenue from extended warranty contracts is initially recorded as deferred income and subsequently recognized on a straightline basis over the delivery period because the company is providing a service of standing ready to provide services over such term. Selected information related to warranties provided by IBM follows (in millions of U.S. dollars) 2018 2017 2016 Het reves Standard warranty liability, and of year Charges incurred during the year Extended warranty, deferred rovence, end of year evenue deferred to be extended warranty contracte 580,491 580,039 580.619 136 120 174 141 183 102 551 500 569 230 205 201 Required: that were nor 2012 and 201R Internuanswers in millions of dollar Required: 1. Compute the amount of warranty expense for 2017 and 2018. (Enter your answers in millions of dollars) Answer is complete and correct. 2018 2017 Warranty expense 5 107 170 2. Prepare journal entries to record both the warranty expense for 2018 and the payments mode under the warranty during the year. (1 no entry is required for a transaction/event, select "No journal entry required in the first account field. Enter your answers in millions of dollars.) NO Credit Transaction A Answer is complete and correct. General Journal Warranty expense Estimated warranty liability Debit 107 1 107 2 B 141 Estimated warranty label Cash 3-a. Compute the ratio of the warranty expense to net revenues for the three years. The Standard warranty liability had a balance of $199 at the beginning of 2016. (Round percentage answers to 2 decimal places (i.e., 0.1243 should be entered as 12.43).) Answer is complete but not entirely correct. 2018 13.00 % 2017 22.00 2016 19.00 % % Ratio of warranty expense to net revenues
