P9-6 Defining and Analyzing Changes in Current Liabilities
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 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 ability 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 straight-line 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 tem follows (in Millions of U.S. dollars): 2011 2017 2016 Bet revence $80,191 579,739 $80,519 Standard Warranty liability, end of year Charges incurred during the year Extended warranty deferred revenue, end of year Revente de terred for new extended warranty contracts 275 130 168 176 177 578 279 545 232 56) Required: 1. Compute the amount of warranty expense for 2017 and 2018. (Enter your answers in millions of dollars) 2017 Warranty expense 2. Prepare journal entries to record both the warranty expense for 2018 and the payments made under the warranty during the year no entry is required for a transactionlevent, select "No journal entry required in the first account field. Enter your answers in millions of dollars. View transactions Journal entry worksheet > Record to recognize the warranty expense for the year. is before credit General Journal Dehlt Credit acorder Clear entry View general 3- Compute the ratio of the warranty expense to net revenues for the three years. The Standard warranty liability had a balance of $193 at the beginning of 2016. (Round percentage answers to 2 decimal places le 0.1243 should be entered as 12.431) 2018 2016 3. Has the ratio increased or decreased during the three-year period? (Enter your answers in millions of dollars.) 2017 2018 3-b. Has the ratio increased or decreased during the three-year period inter your answers in millions of dollars.) ham 2018 Grund om 2017 2018 4. Based on the limited information available about the warranty expense and settlements during these three years, should IBM induce the ratio of the warranty expense to net sales in future years? O Yes ONO Sa. Compute the extended warranty revenue recognized during 2017 and 2018. (Enter your answers in millions of dollars:) 2018 2017 Banded Warranty nevende 5b. Prepare the journal entry to record the revenue recognized in 2018. pf 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:) Viewractions Journal entry worksheet Record to the recognize revenue related to extended warranties. Tresco Credit A Racord entry Clear View generator
