How would Apple’s financial statements be impacted by its iPhone one-year warranty and related iP

How would Apple’s financial statements be impacted by its iPhone one-year warranty and related iP How would Apple’s financial statements be impacted by its iPhone one-year warranty and related iP - Start

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How would Apple’s financial statements be impacted by its iPhone one-year warranty and related iP




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How would Apple’s financial statements be impacted by its iPhone one-year warranty and related iPhone 6s battery replacement program?

Original blog posting (February 9, 2017)

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Apple iPhone Warranty

Each iPhone comes with basic one-year warranty

Apple will repair or replace iPhones with defects in materials or workmanship at no cost to the customer

Recent batch of iPhone 6s devices found to have a battery defect

Apple issued a battery replacement program for these phones

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Question 1Assume that Apple makes a quarterly adjusting entry using the percent-of-sales method to estimate warranty expense for all new iPhones sold during the quarter. How will this adjusting entry impact Apple’s balance sheet? Its income statement?

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Question 2Is the adjusting entry for warranty expense an accrual or a deferral? Explain.

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Question 3Now think about the battery replacement program for the affected iPhone 6s devices. When a customer brings in his/her iPhone 6s for a battery replacement under the battery replacement program, how will this transaction impact Apple’s balance sheet? Its income statement?

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Question RecapAssume that Apple makes a quarterly adjusting entry using the percent-of-sales method to estimate warranty expense for all new iPhones sold during the quarter. How will this adjusting entry impact Apple’s balance sheet? Its income statement? Is the adjusting entry for warranty expense an accrual or a deferral? Explain.

Now think about the battery replacement program for the affected iPhone 6s devices. When a customer brings in his/her iPhone 6s for a battery replacement under the battery replacement program, how will this transaction impact Apple’s balance sheet? Its income statement?

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For additional news stories to use in the accounting classroom, see the Accounting in the Headlines blog at http://accountingintheheadlines.com/ Questions or comments?

Contact Dr. Wendy Tietz at

wtietz@kent.edu

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