Ford Motor Company disclosed the following estimated product warranty payable fo
ID: 2421380 • Letter: F
Question
Ford Motor Company disclosed the following estimated product warranty payable for two recent years. Ford's sales in its automotive sector were $128,168 million in Year 2 and $119,280 million in Year 1. Assume that the total paid on warranty claims during Year 2 was $2,799 million. a. Illustrate the effects on the accounts and financial statements for the Year 2 product warranty expense. If no account or activity is affected, select "No effect" from the dropdown list and leave the corresponding number entry box blank. Enter account decreases and cash outflows as negative amounts. All of the following are reasons why Ford's total warranty liability might decrease except:Explanation / Answer
Amt. in Millions Statement of Cash flow Balance Sheet Income Statement Assets = Liabilities + Stockholders's Equity No Effect Product Warranty Payable Retained Earnings $0 $3,915 ($2,859) Statement of cash Flow Income Statement No Effect $0 Product Warranty Expenses $2,859 Product Warranty Payable Particulars Amount Particulars Amount To Warranty Claims 2799 By Balance B/f 3855 To Balance C/f 3915 By Profit & Loss A/c 2859 (Balancing Figure) 6714 6714 Answer b. Ford actual claim experience might be increasing