P9-6 Defining and Analyzing Changes in Current Liabilities L09-1 International Business Machines (BM) 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 verity 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 straight-line bosis 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) 2010 2017 2016 at revenues $10,491 500,039 380,819 Standard warranty Tlability, end of year 170 174 Charges incurred during the year 141 183 182 Extended warranty deferred revenue, end of year 551 584 549 Revenue deferred for new extended warranty contracts 230 281 285 3-. Has the ratio Increased or decreased during the three-year period? (Enter your answers in millions of dollars.) from 2016 to 2017, and from 2017 to 2016 ences 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? Yes ONO 5-a. Compute the extended warranty revenue recognized during 2017 and 2018. (Enter your answers in milions of dollars.) 2018 2017 Extended Warranty revue Jook 5-b. Prepare the journal entry to record the revenue recognized in 2018. (If 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.) View transaction llat rences Journal entry worksheet Record to the recognize revenue related to extended warranties. Toteur des before credits General Journal Debit Credit Transaction A Record entry Clear entry View general journal