Reformulating Financial Statements For Warranty Expense Income statement data for Whirlpool Industries from the company's 2016 financial statements follow. Use these data to reformulate the income statement for 2014, 2015, and 2016 under the assumption that warranty expense is a constant percentage of revenue across all three years. Specifically, compute the adjustments to: warranty expense, income tax expense, and net income. The company's tax rate is 30%. 12 Months Ended ($ millions) Dec. 31, 2016 Dec. 31, 2015 Dec. 31, 2014 Net sales $26,396 $26,569 $25,550 Warranty expense 571 815 577 Compute the average warranty expense to net sales rate over the past three years. Round answer to two decimal places (ex: 0.02345 = 2.35%) 2.5 % Using your rounded answer, compute the adjusted warranty expense for each year. • Round answers to one decimal place. • Use a negative sign to indicate if the adjustment decreases an account balance. Income Statements Adjustments Adjusted warranty expense Adjustment required to warranty expense Income tax expense Net Income $ 2016 659.9 88.9 ✔ (26.7) ✔ (62.3) x $ 2015 664.3 * $ (150.7) * 45.2 ✔ 105.5 x 2014 638.8 ✔ 61.8 ✔ (18.5) ✔ (43.3) ✔

Reformulating Financial Statements For Warranty Expense Income statement data for Whirlpool Industries from the company's 2016 financial statements follow. Use these data to reformulate the income statement for 2014, 2015, and 2016 under the assumption that warranty expense is a constant percentage of revenue across all three years. Specifically, compute the adjustments to: warranty expense, income tax expense, and net income. The company's tax rate is 30%. 12 Months Ended ($ millions) Dec. 31, 2016 Dec. 31, 2015 Dec. 31, 2014 Net sales $26,396 $26,569 $25,550 Warranty expense 571 815 577 Compute the average warranty expense to net sales rate over the past three years. Round answer to two decimal places (ex: 0.02345 = 2.35%) 2.5 % Using your rounded answer, compute the adjusted warranty expense for each year. • Round answers to one decimal place. • Use a negative sign to indicate if the adjustment decreases an account balance. Income Statements Adjustments Adjusted warranty expense Adjustment required to warranty expense Income tax expense Net Income $ 2016 659.9 88.9 ✔ (26.7) ✔ (62.3) x $ 2015 664.3 * $ (150.7) * 45.2 ✔ 105.5 x 2014 638.8 ✔ 61.8 ✔ (18.5) ✔ (43.3) ✔

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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