Question

Reformulating Financial Statements for Warranty Expense Ford Motor Company reported the following information in its current fiscal year financial statements. Use these data to answer the requirements. Warranty Liability $ millions Two Years Prior Prior Year Current Year Beginning balance $6,837 $7,440 $7,944 Payments made during the period (4,929) (5,186) (6,540) Changes in accrual related to warranties issued during the period 3,489 3,390 3,876 Changes in accrual related to pre-existing warranties 2,040 2,123 2,637 Foreign currency translation and other 3 177 (212) Ending balance $7,440 $7,944 $7,705 The income statement reports the following additional information. $ millions Two Years Prior Prior Year Current Year Automotive revenues $212,321 $218,480 $222,441 Financial services revenues 15,380 16,670 18,027 Total revenues $227,701 $235,150 $240,468 Required a. Which type of revenue (Automotive or Financial Services) is related to warranty expense? Answer 1 Automotive b. 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 22%. Note: Enter an increase in expense as positive and a decrease in expense as negative. Note: Enter an increase in net income as positive and a decrease in net income as negative. Note: Round answer to the nearest dollar, if applicable. Note: Do not round intermediate calculation, if applicable. $ millions Two Years Prior Prior Year Current Year Adjustment to warranty expense Answer 2 320.63 Answer 3 0 Answer 4 0 Adjustment to income tax expense (22%) Answer 5 0 Answer 6 0 Answer 7 0 Adjustment to net income Answer 8 0 Answer 9 0 Answer 10 0 c. 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 22%. Note: Enter an increase in account balance as positive and a decrease in account balance as negative. Note: Round answer to the nearest dollar, if applicable. Note: Do not round intermediate calculation, if applicable.

Reformulating Financial Statements for Warranty Expense
Ford Motor Company reported the following information in its current fiscal year financial statements. Use these data to answer the requirements.
Warranty Liability $ millions Two Years Prior Prior Year Current Year
Beginning balance $6,837 $7,440 $7,944
Payments made during the period (4,929) (5,186) (6,540)
Changes in accrual related to warranties issued during the period 3,489 3,390 3,876
Changes in accrual related to pre-existing warranties 2,040 2,123 2,637
Foreign currency translation and other 3 177 (212)
Ending balance $7,440 $7,944 $7,705
The income statement reports the following additional information.
$ millions Two Years Prior Prior Year Current Year
Automotive revenues $212,321 $218,480 $222,441
Financial services revenues 15,380 16,670 18,027
Total revenues $227,701 $235,150 $240,468
Required
a. Which type of revenue (Automotive or Financial Services) is related to warranty expense?
Answer 1
Automotive
b. 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 22%.
Note: Enter an increase in expense as positive and a decrease in expense as negative.
Note: Enter an increase in net income as positive and a decrease in net income as negative.
Note: Round answer to the nearest dollar, if applicable.
Note: Do not round intermediate calculation, if applicable.
$ millions Two Years Prior Prior Year Current Year
Adjustment to warranty expense Answer 2
320.63
Answer 3
0
Answer 4
0
Adjustment to income tax expense (22%) Answer 5
0
Answer 6
0
Answer 7
0
Adjustment to net income Answer 8
0
Answer 9
0
Answer 10
0
c. 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 22%.
Note: Enter an increase in account balance as positive and a decrease in account balance as negative.
Note: Round answer to the nearest dollar, if applicable.
Note: Do not round intermediate calculation, if applicable.

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