b. Journalize the entry to record the warranty work provided in February, EX 10-
ID: 2587661 • Letter: B
Question
b. Journalize the entry to record the warranty work provided in February, EX 10-20 Accrued product warranty General Motors Corporation (GM) disclosed estimated product warranty payable for compara tive years as follows: in millions) Current estimated product warranty payable Noncurrent estimated product warranty payable Total Year 2 53,059 4.327 Year 1 52.884 4147 Chapter 10 Current Liabilities and Payroll 487 Presume that GM's sales were $135,592 million in Year 2 and that the toal paid on warranty claims during Year 2 was $3,000 million. Why are short- a b. Provide the journal entry for the Year 2 product warranty expense. c. What two conditions must be met in order for a product warranty liability to be reported in the financial statements? EX 10-21 Contingent liabilities Several months ago, Ayers Industries Inc. experienced a hazardous materials spill at one its plants. As a result, the EnvExplanation / Answer
a) The warranty liability represents estimated outstanding warranty claims. In the year 1, Among the claims $2,884 millions is estimated due during 2nd year while the remaining claims of $4,147 millions is expected to paid after 2nd year. Short term liabilities and long term liabilities must be seperately disclosed so that the current financial position of the company can be easily judged and it is also important to creditors to find the actual cash demands of the business and other long term demands of the business.
b) Calculation of Year 2 product Warrant Expense (Amount in millions $)
Journal Entry (in millions $)
Dr. Product Warranty Expense 3,355
Cr. Product Warranty Payable 3,355
c) A product warranty expense and warranty liability should be recorded at the time the product is sold, if it is probable that customers will be making claims under the warranty and the amount can be estimated. After fulfilling these two conditions warranty liability and warranty expense can be recognized in financial statements.
Total Closing warranty payable (3,059+4,327) 7,386 Add: Warranty paid during the year 2 3,000 Less: Total Beginning warranty payable (2,884+4,147) (7,031) Warranty expense for the year 2 3,355Related Questions
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