Question

Accrued Product Warranty

Lachgar Industries disclosed estimated product warranty payable for comparative years as follows:

	( in millions)
	Year 2		Year 1
Current estimated product warranty payable	$16,165		$15,498
Noncurrent estimated product warranty payable	9,832		8,666
Total	$25,997		$24,164

Presume that Lachgar’s sales were $210,646 million in Year 2. Assume that the total paid on warranty claims during Year 2 was $16,665 million.

a. The distinction between short- and long-term liabilities is important to creditors in order to accurately evaluate the near-term cash on the business relative to the quick current assets and other longer-term .

b. Provide the journal entry for the Year 2 product warranty expense.

c. What two conditions must be met in order for a product warranty liability to be reported in the financial statements?

Answer 1