Rubenson's Inc. manufactures and sells air conditioning units with a 12 month warranty under which defective air conditioning units will be

replaced free of any charges. On December 31, 20X1, Estimated Warranties Payable had a balance of 2,295,000. By December 31, 20X2, the

account had a balance of 361, 125 by debits for estimated net cost of air conditioning units returned that had been sold in 20X1. The company started out in 20X2 expecting 10% of the sales to be returned. However, due to the innovations and improvements made to the products during the year, the estimated percentage of returns increased to 15% on July 1. It is assumed that no units sold during a given quarter are returned in that quarter. Each unit is stamped with a date at time of sale so that the warranty may be properly administered. The following

table of percentages indicates the pattern of sales return during the 12-month period of warranty, starting with the quarter following the sale of air conditioning units. Quarter following quarter of sale

First quarter Second quarter Third quarter Fourth quarter % of total returns expected

40%

30%

20%

10%

Gross sales of air conditioning units in 20X2 are as follows: Quarter First

Second

Third

Fourth

Sales in Peso 16,200,000

14,850,000

12,000,000

8,100,000

The company also pays for freight costs of the return and the delivery of the defective units returned and the new replacement units, respectively. The freight costs were approximately 10% of the sales price of the air conditioning units returned. The manufacturing cost of the air conditioning units is roughly 80% of the sales price. The returned units can be salvaged at an estimated value of 15% of their sales price. Returned units on hand

at December 31, 20X1 were thus valued in the inventory at 15% of their original sales price. 1. What is the total estimated returns for the year ended December 31, 20X2?

2. What is the warranty expense for the year ended December 31, 20X2?

3. What is the estimated warranties payable as of December 31, 20X2?

4. What is the net adjustment to the warranties payable as of December 31, 20X2?