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 standard warranty terms are recognized when revenue is recorded for the related product. The company estimates its warranty costs standard to the product 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. 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):
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 standard warranty terms are recognized when revenue is recorded for the related product. The company estimates its warranty costs standard to the product 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. 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):
Financial Accounting Intro Concepts Meth/Uses
14th Edition
ISBN:9781285595047
Author:Weil
Publisher:Weil
Chapter4: Balance Sheet: Presenting And Analyzing Resources And Financing
Section: Chapter Questions
Problem 9Q
Related questions
Question
![P9-6 Defining and Analyzing Changes in Current Liabilities LO9-1
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 standard warranty terms are recognized when revenue is recorded for the related product. The
company estimates its warranty costs standard to the product 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.
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
Warranty expense
2010
2017
2016
$81,591 $81,139 $81,919
158
196
163
204
573
260
2018
Required:
1. Compute the amount of warranty expense for 2017 and 2018. (Enter your answers in millions of dollars.)
2017
192
205
606
307
571
303](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F2544b074-24fb-4c8c-9c46-194a4d33d8d8%2F4463c2f7-f788-4c0f-a5fd-aecc9ba5958a%2Fq6sztbk_processed.jpeg&w=3840&q=75)
Transcribed Image Text:P9-6 Defining and Analyzing Changes in Current Liabilities LO9-1
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 standard warranty terms are recognized when revenue is recorded for the related product. The
company estimates its warranty costs standard to the product 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.
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
Warranty expense
2010
2017
2016
$81,591 $81,139 $81,919
158
196
163
204
573
260
2018
Required:
1. Compute the amount of warranty expense for 2017 and 2018. (Enter your answers in millions of dollars.)
2017
192
205
606
307
571
303
![5-b. Prepare the journal entry to record the revenue recognized in 2018. (If no entry is required for a transaction/event, select "No
journal entry required" in the first account field. Enter your answers in millions of dollars.)
View transaction list
Journal entry worksheet
Record to the recognize revenue related to extended warranties.
Note: Enter debits before credits.
Transaction
A
Record entry
General Journal
Clear entry
Debit
Credit
View general journal](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F2544b074-24fb-4c8c-9c46-194a4d33d8d8%2F4463c2f7-f788-4c0f-a5fd-aecc9ba5958a%2Fbafsfi7_processed.jpeg&w=3840&q=75)
Transcribed Image Text:5-b. Prepare the journal entry to record the revenue recognized in 2018. (If no entry is required for a transaction/event, select "No
journal entry required" in the first account field. Enter your answers in millions of dollars.)
View transaction list
Journal entry worksheet
Record to the recognize revenue related to extended warranties.
Note: Enter debits before credits.
Transaction
A
Record entry
General Journal
Clear entry
Debit
Credit
View general journal
Expert Solution
![](/static/compass_v2/shared-icons/check-mark.png)
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 4 steps with 5 images
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
![EBK CONTEMPORARY FINANCIAL MANAGEMENT](https://www.bartleby.com/isbn_cover_images/9781337514835/9781337514835_smallCoverImage.jpg)
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
![EBK CONTEMPORARY FINANCIAL MANAGEMENT](https://www.bartleby.com/isbn_cover_images/9781337514835/9781337514835_smallCoverImage.jpg)
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Principles of Accounting Volume 1
Accounting
ISBN:
9781947172685
Author:
OpenStax
Publisher:
OpenStax College
![Auditing: A Risk Based-Approach (MindTap Course L…](https://www.bartleby.com/isbn_cover_images/9781337619455/9781337619455_smallCoverImage.gif)
Auditing: A Risk Based-Approach (MindTap Course L…
Accounting
ISBN:
9781337619455
Author:
Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:
Cengage Learning
![Financial Reporting, Financial Statement Analysis…](https://www.bartleby.com/isbn_cover_images/9781285190907/9781285190907_smallCoverImage.gif)
Financial Reporting, Financial Statement Analysis…
Finance
ISBN:
9781285190907
Author:
James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:
Cengage Learning