Reference no: EM132907637

YG ENTERTAINMENT INC. carries a wide variety of musical instruments, sound reproduction equipment, recorded music and sheet music. To promote the sale of its products, YG uses two promotion techniques - premiums and warranties.

Premiums

• The premium is offered on the recorded and sheet music. Customers receive a coupon for each P10 spent on recorded music and sheet music. Customers may exchange 200 coupons and P200 for a CD player. YG pays P340 for each CD player and estimates that 60% of the coupons given to customers will be redeemed. A total of 6,500 CD players used in the premium program were purchased during the year and there were 1,200,000 coupons redeemed in 2021.

Warranties

• Music instruments and sound reproduction equipment are sold with a one-year warranty for replacement of parts and labor. The estimated warranty cost, based on past experience is 2% of sales. Replacement parts and labor for warranty work totaled P1,640,000 during 2021.

• YG uses the accrual method to account for the warranty and premium costs for financial reporting purposes. YG's sales for 2021 totaled P72,000,000 - P54,000,000 from musical instruments and sound reproduction equipment and P18,000,000 from recorded music and sheet music.

The balances in the accounts related to warranties and premiums on January 1, 2021, were as shown below:

• Inventory of premium CD players P399,500
• Estimated premium claims outstanding 448,000
• Estimated liability from warranties 1,360,000

Problem 1: Based on the preceding information, determine the amounts that will be shown on the 2021 financial statements for the following:

a. Warranty expense
b. Estimated liability from warranties
c. Premium expense
d. Inventory of premium CD players
e. Estimated premium claims outstanding