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. Any cost of standard warranties is accrued when the corresponding revenue is recognized. The company estimates its standard warranty costs for products 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. Adjustments are made when actual warranty claim experience differs from estimates. Costs from fixed-price support or maintenance contracts, including extended warranty contracts, are recognized as incurred. 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): 2021 2020 2019 $40,550 $39,779 $44,414 84 90 120 (93) (103) (122) 357 432 140 173 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 484 205
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. Any cost of standard warranties is accrued when the corresponding revenue is recognized. The company estimates its standard warranty costs for products 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. Adjustments are made when actual warranty claim experience differs from estimates. Costs from fixed-price support or maintenance contracts, including extended warranty contracts, are recognized as incurred. 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): 2021 2020 2019 $40,550 $39,779 $44,414 84 90 120 (93) (103) (122) 357 432 140 173 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 484 205
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text: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. Any cost of standard warranties is accrued when the corresponding revenue is recognized. The
company estimates its standard warranty costs for products 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. Adjustments are made when actual warranty claim experience differs from estimates.
Costs from fixed-price support or maintenance contracts, including extended warranty contracts, are recognized as
incurred.
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):
2021 2020 2019
$40,550 $39,779 $44,414
84
90
120
(93)
(103)
(122)
357
432
484
140
173
205
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
Transcribed Image Text:5-a. Compute the extended warranty revenue recognized during 2020 and 2021. (Enter your answers in millions of
dollars.)
Extended Warranty revenue
2021
5-b. Prepare the journal entry to record the revenue recognized in 2021. (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.)
No
1
2020
View transaction list View journal entry worksheet
Transaction
A
General Journal
Extended warranty deferred revenue
Extended warranty revenue
Debit
Credit
Ⓡ
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