Reference no: EM132757301
TED, INC., a dealer of household appliances, sells washing machines at an average price of P8,100. The company also offers to each customer a separate 3-year warranty contract for P810 that requires the company to provide periodic maintenance services and to replace defective parts. During 2015, TED sold 300 washing machines and 270 warranty contracts for cash. The company estimates that the warranty costs are P180 for parts and P360 for labor.
Assume sales occurred on December 31, 2015. TED's policy is to recognize income from the warranties on a straight-line basis. In 2016, TED incurred actual costs relative to 2015 warranty sales of P18,000 for parts and P36,000 for labor.
Problem 1: What liability relative to these transactions would appear on the December 31, 2015, statement of financial position and how would it be classified?
Problem 2: What amount of warranty expense would be shown on the income statement for the year ended December 31, 2015?
Problem 3: What liability relative to the 2015 warranties would appear on the December 31, 2016, statement of financial position and how would it be classified?
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