Question - Volvo Group reports the following information for its product warranty cost as of December 31, 2008, along with provisions and utilizations of warranty liabilities for the year ended December 31, 2008(SEK in millions)
Product warranty costs
Estimated costs for product warranties are charged to cost of sales when the products are sold. Estimated warranty costs include contractual warranty and goodwill warranty. Warrany provisions are estimated with consideration of historical claims statistics, the warranty period, the average time lag between faults occurring and claims to the company, and anticipated changes in quality indexes. Differences between actual warranty claims and the estimated claims generally affect the reconized expense and provisions in future periods. At December 31, 2008, warranty cost provisions amounted to 10,354.
Product warranty libilities, Dec 31,07.....SEK 9.373
Additional provisions to product warranty liabilities...6,201
Utilizations and reducitons of product warranty liabilities....(5,220)
Product warranty liabilities, Dec 31,08.....10,354
1. Prepare Volvo's journal entry to record its estimated warranty liabilities (provisions) for 2008.
2. Prepare Volvo's journal entry to record its cost (utilizations) related to its warranty program for 2008.
3. How much warranty expense does Volvo report for 2008?