P9-6 Defining and Analyzing Changes in Current Liabilities LO9-1 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 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 straight-line 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): 2015 2014 2013 Net revenues $82,541 $93,593 $99,167 Standard warranty liability, end of year 261 277 483 Settlements made during the year 276 378 467 Extended warranty deferred revenue, end of year 618 616 659 Additions to extended warranty deferred revenue during the year 366 378 385 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 No a. Compute the extended warranty revenue recognized during 2014 and 2015. (Enter your answers in millions of dollars.) 2015 2014 Warranty revenue b. Prepare the journal entry to record the revenue recognized in 2015. (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 list Journal entry worksheet Record to the recognize revenue related to extended warranties. Note: Enter debits before credits. Transaction General Journal Debit Credit 1