P$7-43.$ Reformulating Financial Statements for Warranty Expense

ANALYST ADJUSTMENIS $7\mathrm{.}1$

Ford Motor Company reported the following information in its current fiscal year financial statements. Use these data to answer the requirements.

The income statement reports the following additional information.

Required

a$.$ What is the motivation for analysts to consider reformulating financial statements for warranty expenses?

b$.$ Which type of revenue $($Automotive or Financial Services$)$ is related to warranty expense? Explain.

c$.$ Reformulate the income statement for all three years under the assumption that warranty expense is a constant percentage of revenue across all three years. Specifically, compute adjustments to: warranty expense, income tax expense, and net income. Assume the company's tax rate is $\backslash (22\backslash \%\backslash ).$

d$.$ Reformulate the balance sheet for all three years. Specifically, compute adjustments to: warranty liabilities, deferred tax assets, and retained earnings. Assume the company's tax rate is $\backslash (22\backslash \%\backslash ).$

L$07\mathrm{.}1$

FORD MOTOR COMPANY $($F$)$