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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Accrued product warranty

General Motors Corporation (GM) disclosed estimated product warranty payable for comparative years as follows:

(in millions)
Year 2 Year1
Current estimated product warranty payable 3059 $2,884
Noncurrent estimated product warranty payable 4327 4,147
Total 7386 $7.03

Presume that GM's sales were $135,592 million in Year 2 and that the total paid on warranty claims during Year 2 was $3,000 million.

  1. a. Why are short and long-term estimated warranty liabilities disclosed separately?
  2. b. Provide the journal entry for the Year 2 product Warranty expense.
  3. c. What two conditions must be met in order for a product warranty liability to be reported in the financial Statements?

A.

To determine

Warranty: It is an agreement made by the company to provide guarantee against the defects in the products.

To state: The reason to separately disclose the short and long-term estimated warranty liabilities.

Explanation

State the reason why the short and long-term estimated warranty liabilities disclosed separately.

The estimated warranty liability signifies the outstanding warranty claims. In year 1, $2,884 million is estimated to be due during Year 2 and $4,147 million is expected to be paid after Year 2...

B.

To determine

To Journalize: Year 2 product warranty expense

C.

To determine

To state: Two conditions that must be met in order for a product warranty liability to be reported in the financial statement.

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