Accrued Product Warranty

Lachgar Industries disclosed estimated product warranty payable for comparative years as follows:

( in millions) Year 2 Year 1 Current estimated product warranty payable $12,333 $11,824 Noncurrent estimated product warranty payable 7,501 6,611 Total $19,834 $18,435

Presume that Lachgars sales were $160,705 million in Year 2. Assume that the total paid on warranty claims during Year 2 was $12,714 million.

a. The distinction between short- and long-term liabilities is important to creditors in order to accurately evaluate the near-term cash demands on the business relative to the quick current assets and other longer-term demands .

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Review the need for a classified balance sheet.

b. Provide the journal entry for the Year 2 product warranty expense.

Product Warranty Expense Product Warranty Payable