Reformulating Financial Statements For Warranty Expense Income statement data for Whirlpool Industries from the company's 2016 financial statements follow. Use these data to reformulate the income statement for 2014, 2015, and 2016 under the assumption that warranty expense is a constant percentage of revenue across all three years. Specifically, compute the adjustments to: warranty expense, income tax expense, and net income. The company's tax rate is 30%. 12 Months Ended ($ millions) Dec. 31, 2016 Dec. 31, 2015 Dec. 31, 2014 Net sales $26,396 $26,569 $25,550 Warranty expense 571 815 577 Compute the average warranty expense to net sales rate over the past three years. Round answer to two decimal places (ex: 0.02345 = 2.35%) 2.5 % Using your rounded answer, compute the adjusted warranty expense for each year. • Round answers to one decimal place. • Use a negative sign to indicate if the adjustment decreases an account balance. Income Statements Adjustments Adjusted warranty expense Adjustment required to warranty expense Income tax expense Net Income $ 2016 659.9 88.9 ✔ (26.7) ✔ (62.3) x $ 2015 664.3 * $ (150.7) * 45.2 ✔ 105.5 x 2014 638.8 ✔ 61.8 ✔ (18.5) ✔ (43.3) ✔

Reformulating Financial Statements For Warranty Expense Income statement data for Whirlpool Industries from the company's 2016 financial statements follow. Use these data to reformulate the income statement for 2014, 2015, and 2016 under the assumption that warranty expense is a constant percentage of revenue across all three years. Specifically, compute the adjustments to: warranty expense, income tax expense, and net income. The company's tax rate is 30%. 12 Months Ended ($ millions) Dec. 31, 2016 Dec. 31, 2015 Dec. 31, 2014 Net sales $26,396 $26,569 $25,550 Warranty expense 571 815 577 Compute the average warranty expense to net sales rate over the past three years. Round answer to two decimal places (ex: 0.02345 = 2.35%) 2.5 % Using your rounded answer, compute the adjusted warranty expense for each year. • Round answers to one decimal place. • Use a negative sign to indicate if the adjustment decreases an account balance. Income Statements Adjustments Adjusted warranty expense Adjustment required to warranty expense Income tax expense Net Income $ 2016 659.9 88.9 ✔ (26.7) ✔ (62.3) x $ 2015 664.3 * $ (150.7) * 45.2 ✔ 105.5 x 2014 638.8 ✔ 61.8 ✔ (18.5) ✔ (43.3) ✔

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter9: Long-term Liabilities

Section: Chapter Questions

Problem 105.2C

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Adjusting Income Statements For Warranty Expense Income statement data for Whirlpool Industries follow. Adjust the income statement for 2014, 2015, and 2016 under the assumption that warranty expense is a constant 1.547% of net sales for each year. The company's tax rate is 30%. $ millions Net sales Warranty expense 2016 2015 2014 414 $26,566 $26,296 $25,524 438 361 Determine the adjusted warranty expense for each year. Round answers to one decimal. $ millions 2016 2015 2014 Adjusted warranty expense $ $ $ Determine the income statement adjustments for each year. • Round answers to one decimal. • Use a negative sign to indicate if the adjustment decreases an account balance. Income Statement Adjustments, $ mil. 2016 2015 Warranty expense Income tax expense Net Income 2014
Income statement data for Whirlpool Industries from the company's 2016 financial statements follow. Use this data to reformulate the income statement for 2014, 2015, and 2016 under the assumption that warranty expense is a constant percentage of revenue across all three years. Specifically, compute the adjustments to: warranty expense, income tax expense, and net income. The company's tax rate is 30%. 12 Months Ended ($ millions) Dec. 31, 2016 Dec. 31, 2015 Dec. 31, 2014 Net sales $22,446 $21,427 $22,273 281 Warranty expense 525 287 Compute the average warranty expense to net sales rate over the past three years. Compute the adjusted warranty expense for each year. 2016 2015 Income Statements Adjustments 2014 Adjusted warranty expense Adjustment required to warranty expense Income tax expense Net Income $ $
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