The company offers warranties for its hardware products that generally range up to three years, with the majority belng elther one or

three years. Any cost of standard warranties is accrued when the corresponding revenue is recognized. The company estimates its

standard warranty costs for products 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 verify that it properly reflects the

remaining obligation based on the anticipated expenditures over the balance of the obligation period. Adjustments are made when

actual warranty claim experience differs from estimates. Costs from fixed$-$price support or maintenance contracts, including extended

warranty contracts, are recognized as incurred.

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 IBM follows $($In millions of U$.$S$.$ dollars$)$:

Net revenues

Standard warranty liability, end of year

Charges incurred during the year

Extended warranty deferred revenue, end of year

Revenue deferred for new extended warranty contracts

Required:

Compute the amount of warranty expense for $2020$ and $2021.($Enter your answers In millions of dollars.$)$

Prepare journal entries to record both the warranty expense for $2021$ and the payments made under the warranty during the year. $($If

no entry is required for a transaction$/$event$,$ select $"$No journal entry required" In the first account fleld. Enter your answers in

millions of dollars.$)$

Journal entry worksheet

Record to recognize the warranty expense for the year.

Note: Enter debits before credits.

$3-$a$.$ Compute the ratio of the warranty expense to net revenues for the three years. The Standard warranty liability had a balance of

$$117$ at the beginning of $2019.($Round percentage answers to $2$ decimal places $($I$.$e$.,0\mathrm{.}1243$ should be entered as $12\mathrm{.}43).)$

$3-$b$.$ Has the ratio increased or decreased during the three$-$year period?