Question

Reformulating Financial Statements For Warranty Expense Income statement data for Whirlpool Industries from the company's 2016 financial statements follow Use these data to reformulate the income statement for 2014, 2015, and 2016 under the assumption that warranty expense is a constant percentage of revenue across all three years. Specifically, compute the adjustments to: Warranty expense, income tax expense, and net income. The company's tax rate is 30%. 12 Months Ended (S millions) Net sales Warranty expense Dec. 31, 2016 Dec. 31, 2015 Dec. 31, 2014 $19,872 322 $20,718 $20,891 316 560 Compute the average warranty expense to net sales rate over the past three years. Round answer to two decimal places (ex: 0.02345 2.35%) Using your rounded answer, compute the adjusted warranty expense for each year Round answers to one decimal place Use a negative sign to indicate if the adjustment decreases an account balance Income Statements Adjustments 2016 2015 2014 Adjusted warranty expense Adjustment required to warranty expense Income tax expense Net Income

Answer 1

Average Warranty expense To Net sales rate:
Total warranty expense			1198
(316+560+322)
Divide: Net sales			61481
(20718+20891+19872)
Average Warranty expenses rate			1.95%
Income Statement Adjustment:
			2016	2015	2014
Net sales			20718	20891	19872
Actual Warranty expenses			316	560	322
Adjusted warranty expenses			404	407.37	387.5
(Net sales*1.95%)
Adjustment required to Warranty expense			88	-152.63	65.5
(Adjusted expense-Actual expense)
Effect on Income			-88	152.63	-65.5
Income tax expenses			-26.4	45.79	-19.65
			(-88*30%)	(152.63*30%)	(-65.5*30%)
Net Income			-61.6	106.84	-45.85
(Effect on income-income tax expense)