a. How much is the warranty expense in 2002?

Total sales in 2002 1,000,000.00

Multiple by estimated warranty cost year of sale 0.03
total: 30,000.00

Total sales in 2002 1,000,000.00

Multiply by estimated warranty cost year after sale 0.05
total: 50,000.00

warranty cost year of sale 30,000.00

warranty cost year after sale 50,000.00
Warranty expense, 2002 80,000.00

b. How much is the estimated liability of December 31, 2002? Assume the 2001 warranty did not yet inspire

Total sales in 2001 800,000.00 Total sales 2002

Multiple by estimated warranty cost year of sale 0.03 Multiple by estimated warranty
24,000.00

Total sales in 2001 800,000.00 Total sales 2002

Multiple by estimated warranty cost year of sale 0.05 Multiple by estimated warranty
40,000.00

Total estimated warranty cost 64,000.00 Warranty cost year of sale

Less: actual warranty expenditures 20,000.00 Add: warranty cost year after sa
Warranty expense 44,000.00 Warranty expense

Total estimated warranty cost

Less: actual warranty expenditu
 Warranty expense

2001 warranty expense 44,000.00

add: 2002 warranty expense 10,000.00
Estimated Liability, 12/31/2002 54,000.00
 rranty did not yet inspire

otal sales 2002 1,000,000.00

Multiple by estimated warranty cost year of sale 0.03
30,000.00

otal sales 2002 1,000,000.00

Multiple by estimated warranty cost year of sale 0.05
50,000.00

Warranty cost year of sale 30,000.00

dd: warranty cost year after sale 50,000.00
Warranty expense 80,000.00

otal estimated warranty cost 80,000.00

ess: actual warranty expenditure 70,000.00
Warranty expense 10,000.00
 a. How much is the premium expense in 2002?

Packages of razor blades sold 400,000.00

Estimated coupons to be redeemed 0.60
Estimated coupons to be presented for redemption 240,000.00
Divide by required no. of coupons for redemption 5.00
Estimated no. of premiums to be distirbuted 48,000.00
Multiply by premium cost 0.50
Premium expense, 2002 24,000.00

b. How much is the estimated liability as of December 31, 2002?

Coupons redeemed 100,000.00

Divided by required no. of coupons to be redeemed 5.00
Estimated no. of premiums 20,000.00
Multiply by premium cost 0.50
Actual coupons redeemed 10,000.00

Premium Expense 24,000.00

Less: Actual redemption 10,000.00
Estimated Liability, 12/31/2002 14,000.00
Packages of razor blades sold 400,000.00
Estimated coupons to be redeemed 0.60
Estimated coupons to be presented for redemption 240,000.00
Divide by required no. of coupons for redemption 5.00
Estimated no. of premiums to be distirbuted 48,000.00
Multiply by premium cost 0.50
Premium expense, 2002 24,000.00
 a. How much is the premium expense in 2002?

Boxes of cereal sold 640,000.00

Estimated coupons to be redeemed 0.40
Estimated coupons to be presented for redemption 256,000.00
Divide by required no. of coupons for redemption 2.00
Estimated no. of premiums to be distirbuted 128,000.00
Multiply by premium cost 1.50
Premium expense, 2002 192,000.00

b. How much is the estimated liability as of December 31, 2002?

Coupons redeemed 250,000.00

Divided by required no. of coupons to be redeemed 2.00
Estimated no. of premiums 125,000.00
Multiply by premium cost 1.50
Actual coupons redeemed 187,500.00

Premium Expense 192,000.00

Less: Actual Redemption 187,500.00
Estimated Liability, 12/31/2002 4,500.00