International Business Machines (IBM) is a leading provider of computer products

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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.

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:

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) Net revenues Standard warranty liability, end of year Settlements made during the year Extended warranty deferred revenue, end of year Additions to extended warranty deferred revenue during the year 2015 2014 2013 $82,041 $93,093 $98,667 418 417 609 335 211 226 568 316 227 328 566 328 Required 1. Compute the amount of warranty expense for 2014 and 2015. (Enter your answers in millions of dollars.) 2015 2014 Warranty expense

Explanation / Answer

1. As per the MATCHING PRICIPLE the expenses must be matched with revenue.The warranty expenses occures because the sale is made and it must be recorded as soon as sales took place. The warranty exp is cost of sale and must be match with revenue as soon as sale is made.

so warranty exp would be equal to warranty liability at each year end

2014 2015

Warranty Exp $227 $211

2.

Journal entry for warranty exp of 2015 =

Warranty Exp A/c Dr. $211

To Cash $211

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