Homework Help is Here – Start Your Trial Now!
Business
Accounting
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):

Survey of Accounting (Accounting I)
Survey of Accounting (Accounting I)
8th Edition
ISBN:9781305961883
Author:Carl Warren
Publisher:Carl Warren
Chapter8: Liabilities And Stockholders' Equity
Section: Chapter Questions
Problem 8.2.2C
See similar textbooks
icon
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
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
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
steps

Step by step

Solved in 4 steps with 5 images

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Revenue Recognition
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.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Survey of Accounting (Accounting I)
Survey of Accounting (Accounting I)
Accounting
ISBN:
9781305961883
Author:
Carl Warren
Publisher:
Cengage Learning
Auditing: A Risk Based-Approach (MindTap Course L…
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 & Managerial Accounting
Financial & Managerial Accounting
Accounting
ISBN:
9781285866307
Author:
Carl Warren, James M. Reeve, Jonathan Duchac
Publisher:
Cengage Learning
Financial Accounting: The Impact on Decision Make…
Financial Accounting: The Impact on Decision Make…
Accounting
ISBN:
9781305654174
Author:
Gary A. Porter, Curtis L. Norton
Publisher:
Cengage Learning
SEE MORE TEXTBOOKS