tme curTeni Iscai year, to record tne accrued product warranu b. Journalize the

Question

tme curTeni Iscai year, to record tne accrued product warranu b. Journalize the entry to record the warranty work provided in February EX 10-20 Accrued product warranty General Motors Corporation (GM) disclosed estimated product warranty payable for compara- tive years as follows: OBJ. S Current estimated product warranty payable Noncurrent estimated product warranty payable Total (in millions) Year 2 $3,059 4.327 $7,386 Year 1 $2,884 4.147 $7,031 Chapter 10 Current Liabilities and Payrol 487 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. a. Why are short- and long-term estimated warranty liabilities separately disclosed? b. Provide the journal entry for the Year 2 product warranty expense. c. What two conditions must be met in order for a product warranty liability to be reported in the financial statements? EX 10-21 Contingent liabilities Several months ago, Ayers Industries Inc. experienced a hazardous materials spill at of its plants. As a result, the Environmental Protection Agency (EPA) fined the company $240 000 The comnanv is contectino the Gna 1 n OBJ.5 one

Explanation / Answer

Answer a. The distinction between short and long term liabilities is important to creditors in order to accurately evaluate the near-term cash requirements on the business relative to the quick current assets and other longer-term cash requirements. Answer b. Beginning Warranty Payable              7,031 Add: Product Warranty Expenses (Bal Fig.)              3,355 Less: Warranty Claims Paid           (3,000) Ending Warranty Claims              7,386 Journal Entry Product Warranty Expenses                        Dr.              3,355    To Product Warranty Payable         3,355 Answer c. The Two Conditions are: 1. Product Warranty and expenses to be recorded when product is sold, if there is possibility or chances that the customer will make the claim. 2. Amount of warranty expenses can be estimated.

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