Accrued Product Warranty General Motors Corporation (GM) disclosed estimated product warranty payable for comparative years as follows:
(in millions)
Year 2 Year 1
Current estimated product warranty payable $3,059 $2,884
Noncurrent estimated product warranty payable 4,327 4,147
Total $7,386 $7,031
Presume that GM's sales were $135,592 million in Year 2 and that the total paid on warranty claims during Year 2 was $3,000 million.
a. The distinction between short- and long-term liabilities is important to creditors in order to accurately evaluate the near-term cash demands on the business relative to the quick current assets and other longer-term demands .
Review the need for a classified balance sheet.
b. Provide the journal entry for the Year 2 product warranty expense.
Product Warranty Expense
Product Warranty Payable