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  • Receivables, While The Related Loan Will Be Reported Under Current Liabilities

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    Mark Michael Legaspi
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    Dolores' Music Emporium provides warranties on musical instruments and premiums on recorded music and sheet music. The document provides information on warranty costs, premium costs, sales figures, and beginning balances for warranty liabilities and premium inventory/claims. Based on this information, the following amounts will be shown on the 2010 financial statements: - Warranty expense: $864,000 - Estimated warranty liability: $640,000 - Premium expense: $604,800 - Inventory of premium items (radios): $455,600 - Estimated premium claims liability: $291,200

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    Dolores' Music Emporium provides warranties on musical instruments and premiums on recorded music and sheet music. The document provides information on warranty costs, premium costs, sales figures, and beginning balances for warranty liabilities and premium inventory/claims. Based on this information, the following amounts will be shown on the 2010 financial statements: - Warranty expense: $864,000 - Estimated warranty liability: $640,000 - Premium expense: $604,800 - Inventory of premium items (radios): $455,600 - Estimated premium claims liability: $291,200

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    © All Rights Reserved
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    400 views2 pages

    Receivables, While The Related Loan Will Be Reported Under Current Liabilities

    Uploaded by

    Mark Michael Legaspi
    Dolores' Music Emporium provides warranties on musical instruments and premiums on recorded music and sheet music. The document provides information on warranty costs, premium costs, sales figures, and beginning balances for warranty liabilities and premium inventory/claims. Based on this information, the following amounts will be shown on the 2010 financial statements: - Warranty expense: $864,000 - Estimated warranty liability: $640,000 - Premium expense: $604,800 - Inventory of premium items (radios): $455,600 - Estimated premium claims liability: $291,200

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    of 2

    receivables, while the related loan will be reported under current liabilities.

    PROBLEM NO. 4 Estimated liabilities – warranty and premium

    Dolores’ 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.
    Dolores pays P34 for each radio and estimates that 60% of the coupons given to customers will be
    redeemed.

    Dolores’ total sales for 2010 were P57,600,000 – P43,200,000 from musical instrument and sound
    reproduction equipment and P14,400,000 from recorded music and sheet music. Replacement parts and
    labor for warranty work totaled P1,312,000 during 2010. A total of 52,000 AM/FM radio used in the
    premium program were purchased during the year and there were 9,600,000 coupons redeemed in 2010.

    The accrual method is used by Dolores 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, 2010, were as
    shown below:

    Inventory of Premium AM/FM radio P 319,600

    Estimated Premium Claims Outstanding 358,000

    Estimated Liability from Warranties 1,088,000

    QUESTIONS:

    Based on the above and the result of your audit, determine the amounts that will be shown on the 2010
    financial statements for the following:

    1. Warranty expense
    a. P 864,000 c. P1,312,000
    b. P1,152,000 d. P 640,000

    2. Estimated liability from warranties


    a. P 864,000 c. P1,088,000
    b. P1,312,000 d. P 640,000

    3. Premium expense
    a. P 604,800 c. P 864,000
    b. P1,468,800 d. P 1,008,000
    4. Inventory of AM/FM radio
    a. P375,600 c. P 618,800
    b. P319,600 d. P 455,600
    5. Estimated liability for premiums
    a. P604,800 c. P 507,600
    b. 291,200 d. P 358,400
    Answers: 1) A; 2) D; 3) A; 4) D; 5) B

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