Dell Computers is a leader in the industry with over $56 billion in sales each y

Question

Dell Computers is a leader in the industry with over $56 billion in sales each year. A recent annual report for Dell contained the following note:

Warranty

We record warranty liabilities at the time of sale for the estimated costs that may be incurred under its limited warranty. Factors that affect our warranty liability include the number of installed units currently under warranty, historical and anticipated rates of warranty claims on those units, and cost per claim to satisfy our warranty obligation.

1. Assume that estimated warranty costs for 2014 were $500 million and that the warranty work was performed during 2015. Describe the financial statement effects for each year.

Walt Disney is a well-recognized brand in the entertainment industry with products ranging from broadcast media to parks and resorts. The following note is from a recent annual report:

Revenue Recognition

For non-expiring, multi-day tickets to our theme parks, we recognize revenue over a three-year period based on estimated usage patterns which are derived from historical usage patterns.

2. Assume that Disney collected $90 million in 2014 multi-day tickets that will be used in future years. For 2015, the company estimates that 60 percent of the tickets will be used. Describe the financial statement effects for each year.

Brunswick Corporation is a multinational company that manufactures and sells marine and recreational products. A recent annual report for Brunswick contained the following information:

Litigation

A jury awarded $44.4 million in damages in a suit brought by Independent Boat Builders, Inc., a buying group of boat manufacturers and its 22 members. Under the antitrust laws, the damage award has been trebled, and the plaintiffs will be entitled to their attorney’s fees and interest. The Company has filed an appeal contending the verdict was erroneous as a matter of law, both as to liability and damages.

3. How should Brunswick account for this litigation?

Halliburton is a major corporation involved in the entire life cycle of oil and gas reserves, starting with exploration and development, moving through production, operations, maintenance, conversion, and refining to infrastructure and abandonment. A recent annual report for the company stated the following:

Environmental Expenditures

Our accrued liabilities from environmental matters were $50 million for the current year and $41 million for the previous year.

4. In your own words, explain Halliburton's accounting policy for environmental expenditures. What is the justification for this policy?

Explanation / Answer

For 2014 Warranty Expense 500 Warranty Liability 500 For 2015 Warranty Liability 500 Spare Parts Inventory Account Or Cash 500 For 2014 Cash 90 Sales Advances 90 For 2015 Sales Advances 54 Sales 54 Contingent Liability of 44.4 They record the cost of cleanups in the year the damage was done

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