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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Accrued product warranty
Ford Motor Company (F) disclosed the following estimated product warranty payable for two recent years.

Ford's sales in its automotive sector were $135,782 million in Year 2 and $139,369 million in Year 1. Assume that the total paid on warranty claims during Year 2 was $2,850 million.
a.Illustrate the effects on the accounts and luumi.il statements for the Year 2 product warranty expense.
b. Explain the $859 ($4,786 - $3,927) million increase in tl»e total warranty liability from Year 1 to Year 2.

To determine

Concept Introduction:

Warranty Expense:

A company may issue warranty with the sale of its product which bounds the company to replace or repair in case of quality failure according to the terms of the warranty. The provision for the estimated warranty liability is made at the time of sale of the products and warranty expense is recorded. This provision is utilized at the time of performing the warranty contract.

Requirement-1:

To Indicate:

The effect of the warranty expense on accounts and financial statements

Explanation

The effect of the warranty expense on accounts and financial statements is explained as follows:

    Account Account TypeFinancial Statement Amount Increase or Decrease
    Warranty Expen...
To determine

Concept Introduction:

Warranty Expense:

A company may issue warranty with the sale of its product which bounds the company to replace or repair in case of quality failure according to the terms of the warranty. The provision for the estimated warranty liability is made at the time of sale of the products and warranty expense is recorded. This provision is utilized at the time of performing the warranty contract.

Requirement-2:

To Explain:

The Change in the warranty liability account

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