At what amount should the warranty expense and premium expense be shown in the December 31, 2022 profit or loss of Jackson Emporium? 2. At what amount should the estimated liability from warranties be shown in the December 31, 2022 statement of financial position of Jackson Music Emporium?
Jackson Music Emporium carries a wide variety of musical instruments, sound reproduction equipment, recorded music and sheet music. Jackson uses two sales promotion techniques namely (a) warranties and (b) premiums, to attract customers.
Musical instruments and sound equipment are sold with a 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 receive a coupon for each peso spent on recorded music or sheer music. Customers may exchange 200 coupons and P20 for a cassette player. Jackson pays P34 for each cassette player and estimates that 60% of the coupons given to the customer will be redeemed.
Jackson's total sales for 2022 were P7,200,000; P5,400,000 from musical instruments and sound reproduction equipment and P1,800,00 from recorded music and sheet music. Replacement parts and labor for warranty work totaled P164,000 during 2022. A total of 6,500 cassette players used in the premium program were purchased during the year and there were 1,200,000 coupons were redeemed in 2022.
The accrual method is used by Jackson 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, 2022 are shown below:
Inventory of premium cassette players - P39,950
Estimated premium claims outstanding - P44,800
Estimated liability for warranties - P136,000
1. At what amount should the warranty expense and premium expense be shown in the December 31, 2022 profit or loss of Jackson Emporium?
2. At what amount should the estimated liability from warranties be shown in the December 31, 2022
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