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 elther one or three years. Estimated costs for warranty terms standard to the deliverable are recognized when revenue is recorded for the related deliverable. The company estimates its warranty costs standard to the deliverable based on historical warranty claim experience and estimates of future spending, and applies this estimate to the revenue stream for products under warranty. subsequently recognized on a straighthine basis over the delivery period, Revenue from separately priced extended warranty contracts is initially recorded as deferred income and subsequently recognized on a straight-line basis over the delivery period. Selected information related to warranties provided by IBM follows (in millions of U.S. dollars); Required: 1. Compute the amount of warranty expense for 2014 and 2015. 2. Prepare journal entries to record both the warranty expense for 2015 and the payments made under the warranty during the year. 3. Compute the ratio of the warranty expense to net revenues for the three years. Has the ratio increased or decreased during the three-year period? Provide possible reasons for the changes in the ratio. The Standard warranty liability had a balance of $394 at the beginning of 2013. 4. Based on the limited information available about the warranty expense and settlements during these three years, should IBM reduce the ratio of the warranty expense to net sales in future years? Explain. 5. Compute the extended warranty revenue recognized during 2014 and 2015 , and prepare the jou entry to record the revenue recogrized in 2015. 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 elther one or three years. Estimated costs for warranty terms standard to the deliverable are recognized when revenue is recorded for the related deliverable. The company estimates its warranty costs standard to the deliverable based on historical warranty claim experience and estimates of future spending, and applies this estimate to the revenue stream for products under warranty. subsequently recognized on a straighthine basis over the delivery period, Revenue from separately priced extended warranty contracts is initially recorded as deferred income and subsequently recognized on a straight-line basis over the delivery period. Selected information related to warranties provided by IBM follows (in millions of U.S. dollars); Required: 1. Compute the amount of warranty expense for 2014 and 2015. 2. Prepare journal entries to record both the warranty expense for 2015 and the payments made under the warranty during the year. 3. Compute the ratio of the warranty expense to net revenues for the three years. Has the ratio increased or decreased during the three-year period? Provide possible reasons for the changes in the ratio. The Standard warranty liability had a balance of $394 at the beginning of 2013. 4. Based on the limited information available about the warranty expense and settlements during these three years, should IBM reduce the ratio of the warranty expense to net sales in future years? Explain. 5. Compute the extended warranty revenue recognized during 2014 and 2015 , and prepare the jou entry to record the revenue recogrized in 2015