Question Volvo Group reports the following information for its product warranty costs as of December 31, 2014,
along with provisions and utilizations of warranty liabilities for the year ended December 31, 2014 (SEK
in millions).
Provision for product warrantyWarranty 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. Estimated costs for product warranties are recognized as cost of sales
when the products are sold . . . Differences between actual warranty claims and the estimated final claims
cost generally affect the recognized expense and provisions in future periods. Refunds from suppliers, that
decrease the Volvo Group’s warranty costs, are recognized to the extent these are considered to be certain.
Product warranty liabilities, December 31, 2013 SEK 9,881
Additional provisions to product warranty liabilities . 7,836
Utilizations and reductions of product warranty liabilities (7,134)
Product warranty liabilities, December 31, 2014 SEK 10,583
As of December 31, 2014 (2013), warranty cost provisions amount to 10,583 (9,881).
1. Prepare Volvo’s journal entry to record its estimated warranty liabilities (provisions) for 2014.
2. Prepare Volvo’s journal entry to record its costs (utilizations) related to its warranty program for 2014.
Assume those costs involve replacements taken out of inventory, with no cash involved.
3. How much warranty expense does Volvo report for 2014?
