B.

What amount of warranty liability would appear on the

Problem 1: F Company started selling a new product that
carried a two-year warranty against defects. Based upon
past experience with other products, the estimated warranty
cost related to peso sales are computed as follows:
First year warranty 3% Second year warranty 5%
Total sales and actual warranty repairs for 2018 and 2019 are
given below:
2018 2019
Sales 4,200,000 6,960,000
Actual warranty expenditures 148,800 180,000
Requirements:
a. What amount should the company report as its
estimated warranty liability as of December 31, 2019?
b. Based on the above data, assuming that sales and
repairs occur evenly throughout the year, how much
would be the predicted warranty expense covering 2018
and 2019 sales still under warranty at December 31,
2019?
December 31, 2019, statement of financial position?
Problem 5: In packages of its products, P includes coupons that
may be presented at retail stores to obtain discounts on other P
products. Retailers are reimbursed for the face amount of
coupons redeemed plus 10% of that amount for handling cost.
P honors request for coupon redemption by retailers up to 3
months after the customer expiration date. P estimates that
60% of all coupons issued will ultimately be redeemed.
Information relating to coupons issued by P during 2019 is as
follows:
Customer expiration date December 31,
2018
Total payments to retailers as of December 31, 2019, 165,000
Liability for unredeemed coupons as of December 31, 2019,
99,000.
What are the total face amounts of coupons issued by P in
2019?

Problem 2: Beginning the year 2019, the P Company began

marketing new beer to help promote the product, the
management is offering a special mug to each customer for
every 20 specially marked bottles. P estimates that out of
300,000 bottles of beer sold during 2019, only 30% of the
bottle caps will be redeemed. For the year 2019, 5,000 beer
mugs were purchased by the company at a total cost of
140,000. A total of 4,000 mugs were already distributed to
customers.
Requirements:
a. What is the amount of liability that P should report on
its December 31, 2019 statement of financial position?
b. How much is the premium expense reported on P’s
profit or loss for the year ended December 31, 2019?

Problem 3: DP Inc a dealer of household appliances, sells

washing machines at an average price of 8,100. The
company also offers to each customer a separate 3-year
warranty contract for 810 that requires the company to
provide periodic maintenance services and to replace defective
parts. During 2019, DP sold 300 washing machines and 270
warranty contracts for cash. The company estimates that the
warranty cost is 180 for parts and 360 for labor.
Assume sales occurred on December 31, 2019. DP’s policy is to
recognize income from the warranties on a straight-line basis.
In 2020, DP incurred actual cost relative to 2019 warranty sales
of 18,000 for parts and 36,000 for labor.
a. What liability relative to these transactions would
appear on the December 31, 2019, statement of
financial position and how would it be classified?
b. What amount of warranty expense would be shown on
the income statement for the year ended December 31,
2020?
c. What liability relative to the 2019 warranties would
appear on the December 31, 2020, statement of
financial position and how would it be classified?

Problem 4: Presented below are two independent situations.

Answer the question at the end of each situation.
Situation 1- B Company, a machinery dealer, sells a machine
for 22,200 under a 1-year warranty contract that requires the
company to replace all defective parts and provide the
necessary repair labor at no cost to the customers. With sales
being made evenly throughout the year, B sells for cash 600
machines in 2019 (half of the warranty expense is incurred in
2019, half in 2020). On the basis of past experience, the 1-year
warranty cost are estimated to be 510 parts and 660 labor.
Assume that in 2019, these warranty costs are incurred exactly
as estimated.
A. What amount of warranty expense would be charged
against 2019 revenue?