P8-6 (Algo) Defining and Analyzing Changes in Current Liabilities LO8-1 International Bushess 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 warrantles and extended warranties with the sale of its products. The company's note on significant accounting pollcies is as follows: The company offers warranties for its hardware products that generally range up to three years, with the majorily being either one or three years. Any cost of standard warrantes is accrued when the corresponding revenue is recognized. The company estimates its standard warranty costs for products based on historical warranty daim 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 curtent perfod are charged to cost of sales. The warranty liabity is reviewed quarterly to verify that it properly reflects the remaintng obligation based on the antidipsted expenditures over the balance of the obligation petiod. Adjustments are made when. actual wartanty claim experience differs from estimates. Costs from fixed-price support or maintenance contracts, including extended warranty contracts, are recognized as incurred. Revenue from extended watranty contracts is initially recorded as deferred income and subsequently recognized on a straight-fine basis over the delivery period because the company is providing a service of standing ready to provide services over such ferm. Selected information relited to wartantes provided by 18M follows (in militons of U.S dollors) 1. Compute the amount of warranty expense for 2020 and 2021. (Enter your answers in millions of dollars.) 2. Prepare journal entries to record both the warranty expense for 2021 and the payments made under the warranty during the year. (If no entry is required for o transoction/event, select "No journal entry required" in the first occount field. Enter your onswers in mittions of dollars.) Journal entry worksheet 2. Record to recognize the watranty expense for the year. Note: Enter debits before credits. 3-a, Compute the ratio of the warranty expense to net revenues for the three years. The Standard watranty liability had a balance of $121 at the beginning of 2019 . (Round percentoge answers to 2 decimal places (i.e., 0.1243 should be entered as 12.43).) 3.b. Has the ratio increased or decieased during the three year petiod? 4. Based on the limited information available about the warranty expense and settlements during these three years, should IBM reduce the ratlo of the warranty expense to net sales in future years? Yes No 5. a. Compute the extended warranty revenue recognized duting 2020 and 2021 . (Enter your onswers in millions of dollors.) 5-b. Prepare the joumal entry to record the revenue recognized in 2021. (If no entry is required for a transaction/event, select "No journal entry required" in the first occount field. Enter your answers in millions of clollars.) Journal entry worksheet Record to the recognize revenue related to extended warranties. Note: Enter debits before credits