Reference no: EM132651131

Question - Analysis of Warranty Footnote

Warranty Costs - The Company accrues the estimated cost of warranties in the period the related revenue is recognized based on historical and projected warranty claim rates, historical and projected cost per claim and knowledge of specific product failures outside of the Company's typical experience. The Company regularly reviews these estimates and adjusts the amounts as necessary. If actual product failure rates or repair costs differ from estimates, revisions to the estimated warranty liabilities would be required and could materially affect the Company's financial condition and operating results.

Accrued Warranty and Indemnification - The following table shows changes in the Company's accrued warranties and related costs for 2018, 2017 and 2016 (in millions):

	2018	2017	2016
Beginning accrued warranty and related costs	$3,834	$3,702	$4,780
Cost of warranty claims	(4,115)	(4,322)	(4,663)
Accruals for product warranty	3,973	4,454	3,585
Ending accrued warranty and related costs	$3,692	$3,834	$3,702

Revenue for 2018 and 2017 was $265,595 and $229,234, respectively.

Required -

1. How much warranty expense did Apple recognize in 2018? What effect did this have on the BSE?

2. What was the cost to Apple to fufill warranties during 2018? What effect did this have on the BSE?

3. What % of revenue did Apple use to record warranty expense during 2018 and 2017?

4. What could explain the difference between the % used between the two years?