P$8-6($Algo$)$ Defining and Analyzing Changes in Current Liabilities LO$8-1$

International Business Machines $($IBM$)$ is a leading provider of computer products and services. The company is known for its hardware

products but has focused on providing information technology services in recent years. IBM provides standard warranties and

extended warranties with the sale of its products. The company's note on significant accounting policies is as follows:

The company offers warranties for its hardware products that generally range up to three years, with the majority being either one or

three years. Any cost of standard warranties is accrued when the corresponding revenue is recognized. The company estimates its

standard warranty costs for products based on historical warranty claim experience and estimates of future spending and applies this

estimate to the revenue stream for products under warranty. Estimated future costs for warranties applicable to revenue recognized in

the current period are charged to cost of sales. The warranty liability is reviewed quarterly to verify that it properly reflects the

femaining obligation based on the anticipated expenditures over the balance of the obligation period. Adjustments are made when

actual warranty claim experience differs from estimates. Costs from fixed$-$price support or maintenance contracts, including extended

varranty contracts, are recognized as incurred.

Revenue from extended warranty contracts is initially recorded as deferred income and subsequently recognized on a straight$-$line

pasis over the delivery period because the company is providing a service of standing ready to provide services over such term.

Selected information related to warranties provided by IBM follows $($in millions of U$.$S$.$ dollars$)$:

Required:

Compute the amount of warranty expense for $2020$ and $2021.($Enter your answers in millions of dollars.$)$

Prepare journal entries to record both the warranty expense for $2021$ and the payments made under the warranty during the year. $($If

ho entry is required for a transaction$/$event$,$ select $"$No journal entry required" in the first account field. Enter your answers in

millions of dollars.$)$