BTS Music Shop is preparing its financial statements for the year ended December 31, 2019. Determine the amounts that will be shown in on the 2019 financial statements for the following: (1) Warranty expense (2) Warranty liability (3) Premium expense (4) Inventory of premiums (5) Premium liability
ment, recorded music, and sheet music. BTS uses two sales promotions techniques – warranties and premiums – to attract customers.
Musical instruments and sound equipment are sold with one year warranty for replacement of parts and labor. The estimated warranty cost, based on past experience is 2% of sales.
The premium is offered on the recorded and sheet music. Customers may exchange 2,000 coupons and P200 for a Bluetooth speaker. BTS pays P320 for each speaker and estimates that 60% of the coupons given to customers will be redeemed.
BTS’s total sales for 2019 were P72, 000,000 – P57, 000,000 from musical instruments and sound reproduction equipment and P15, 000,000 from recorded music and sheet. Replacement parts and labor for warranty work totalled P1, 640,000 during 2019. A total of 65,000 Bluetooth speakers used in the premium program were purchased during the year and there were P12, 000,000 coupons redeemed in 2019.
The accrual method is used by BTS to account for the warranty and premium costs for financial reporting purposes. The balances in the accounts related to warranties and premiums on January 1, 2019 were shown below:
Inventory of premiums P376,000
Premium Liability 44,800 Warranty Liability 136,000
Instructions:
BTS Music Shop is preparing its financial statements for the year ended December 31, 2019. Determine the amounts that will be shown in on the 2019 financial statements for the following:
(1) Warranty expense
(2) Warranty liability
(3) Premium expense
(4) Inventory of premiums
(5) Premium liability
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