1

2020
Cash ₱ 4,500,000.00
Sales (300×15,000) ₱ 4,500,000.00

Warranty Expense ₱ 40,000.00

Cash ₱ 40,000.00

2021
Cash ₱ 7,500,000.00
Sales (500×15,000) ₱ 7,500,000.00

Warranty Expense ₱ 150,000.00

Cash ₱ 150,000.00

2
2020
Cash ₱ 4,500,000.00
Sales (300×15,000) ₱ 4,500,000.00

Warranty Expense ₱ 144,000.00

Estimated Warranty Liability (60%×300×800) ₱ 144,000.00

Estimated Warranty Liability ₱ 40,000.00

Cash ₱ 40,000.00

2021
Cash ₱ 7,500,000.00
Sales (500×15,000) ₱ 7,500,000.00

Warranty Expense ₱ 240,000.00

Estimated Warranty Liability (60%×500×800) ₱ 240,000.00

Estimated Warranty Liability ₱ 150,000.00

Cash ₱ 150,000.00

3
Warranty Expense:
2020 ₱ 144,000.00
2021 ₱ 240,000.00 ₱ 384,000.00
Less: Actual Warranty Payment:
2020 ₱ 40,000.00
2021 ₱ 150,000.00 ₱ 190,000.00
Estimated Warranty Liability - Dec 31, 2021 ₱ 194,000.00
4
Warranty Expense related to 2020 Sales
2020
First contract year of 1/1/2020 sales (150×20%×800) ₱ 24,000.00
First contract year of 7/1/2020 sales (150×20%×800×6/12) ₱ 12,000.00
2021
First contract year of 7/1/2020 sales (150×20%×800×6/12) ₱ 12,000.00
Second contract year of 1/1/2020 Sales (150×40%×800) ₱ 48,000.00
Second contract year of 7/1/2020 Sales (150×40%×800×6/12) ₱ 24,000.00
2022
Second contract year of 7/1/2020 Sales (150×40%×800×6/12) ₱ 24,000.00
Warranty Expense for 2020 ₱ 144,000.00

Warranty Expense related to 2021 sales

2021
First contract year of 1/1/2021 sales (250×20%×800) ₱ 40,000.00
First contract year of 7/1/2021 sales (250×20%×800×6/12) ₱ 20,000.00
2022
First contract year of 7/1/2021 sales (250×20%×800×6/12) ₱ 20,000.00
Second contract year of 1/1/2021 sales (250×40%×800) ₱ 80,000.00
Second contract year of 7/1/2021 sales (250×40%×800×6/12) ₱ 40,000.00
2023
Second contract year of 7/1/2021 sales (250×40%×800×6/12) ₱ 40,000.00
Warranty Expense for 2021 ₱ 240,000.00

5
2020 sales still under warranty after Dec 31 2021:
second contract year of 7/1/2020 sales ₱ 24,000.00
2021 sales still under warranty after Dec 31 2021:
first contract year of 7/1/2021 sales ₱ 20,000.00
second contract year of 1/1/2021 sales ₱ 80,000.00
second contract year of 7/1/2021 sales ₱ 80,000.00
Estimated Warranty Liability - Dec 31 2021 ₱ 204,000.00
Less: Estimated Warranty Liability per book ₱ 194,000.00
Estimated Warranty Liability ₱ 10,000.00

Adjusting Entry:
2021
Warranty Expense ₱ 10,000.00
Estimated Warranty Liability ₱ 10,000.00
1
2020
Cash ₱ 2,943,000.00
Sales ₱ 2,700,000.00
Unearned Wareanty Revenue ₱ 243,000.00

2021
Unearned Warranty Revenue ₱ 81,000.00
Warranty Revenue (243,000/3) ₱ 81,000.00

Warranty Expense ₱ 60,000.00

Inventory ₱ 20,000.00
Cash ₱ 40,000.00

2
Current Liabilities:
Unearned Warranty Revenue ₱ 81,000.00

Non-current Liabilities:
Unearned Warranty Revenue ₱ 81,000.00
Problem 3-14
Warranty Liability ₱ 640,000.00
Divide by: Rate 8.00%
Net Sales ₱ 8,000,000.00 A.

Problem 3-15
1
Warranty Expense - 2020 (5,000,000×7%) ₱ 350,000.00 A.

2
Warranty Expense - 2020 ₱ 350,000.00
Less: Warranty Cost - 2020 ₱ 100,000.00
Warranty Liability - Dec 31, 2020 ₱ 250,000.00 B.

3
Warranty Expense - 2021 (7,000,000×7%) ₱ 490,000.00 C.

4
Warranty Liability - Dec 31, 2020 ₱ 250,000.00
Warranty Expense - 2021 ₱ 490,000.00
Total ₱ 740,000.00
Less: Warranty Cost - 2021 ₱ 300,000.00
Warranty Liability - Dec 31, 2021 ₱ 440,000.00 B.