Reference no: EM132757298

TED' Music Emporium carries a wide variety of music promotion techniques- warranties and premiums - to attract customers. Musical instrument and sound equipment are sold in a one-year warranty for replacement of parts and labor. The estimated warranty cost, based on past experience, is 2% of sales.

• The premium is offered on the recorded and sheet music. Customers receive a coupon for each peso spent on recorded music or sheet music. Customers may exchange 200 coupons and P20 for an AM/FM radio. TED pays P34 for each radio and estimates that 60% of the coupons given to customers will be redeemed.
• TED' total sales for 2005 were P7,200,000 - P5,400,000 from musical instrument and sound reproduction equipment and P1,800,000 from recorded music and sheet music. Replacement parts and labor for warranty work totaled P164,000 during 2005. A total of 6,500 AM/FM radio used in the premium program were purchased during the year and there were 1,200,000 coupons redeemed in 2005.

The accrual method is used by TED to account for the warranty and premium costs for financial reporting purposes. The balance in the accounts related to warranties and premiums on January 1, 2005, were as shown below:

Inventory of Premium AM/FM radio P39,950
Estimated Premium Claims Outstanding 44,800
Estimated Liability from Warranties 136,000

Problem 1: Based on the above and the result of your audit, determine the amounts that will be shown on the 2005 financial statements for the following:

1. Warranty expense
2. Estimated liability from warranties
3. Premium expense
4. Inventory of AM/FM radio
5. Estimated liability for premiums