Question

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 ($ millions) Dec. 31, 2016 Dec. 31, 2015 Dec. 31, 2014
Net sales $23,928 $24,101 $23,082
Warranty expense 366 610 372

Required:
Compute the average warranty expense to net sales rate over the past three years.

Answer 1

1. The computation of the adjustments to warranty expense, income tax expense, and net income and the reformulation of the income statement for 2014, 2015, and 2016 for Whirlpool Industries are as follows:

12 Months Ended ($ millions)   Dec. 31, 2016    Dec. 31, 2015    Dec. 31, 2014

Net sales                                        $23,928              $24,101            $23,082

Warranty expense                               366                     610                    372

Taxable income                            $23,562             $23,491             $22,710

Tax expenses (30%)                      $7,069               $7,047               $6,813

Net income                                  $16,493             $16,444            $15,897

2. The computation of the average warranty expense to net sales rate over the past three years is as follows:

12 Months Ended ($ millions)   Dec. 31, 2016    Dec. 31, 2015    Dec. 31, 2014

Net sales                                        $23,928              $24,101            $23,082

Warranty expense                                366                     610                    372

Warranty expenses to

 net sales rate                              1.5296%             2.5310%              1.6116%

Average warranty expenses to net sales rate = 1.89% (5.6722/3)

Data and Calculations:

12 Months Ended ($ millions)   Dec. 31, 2016    Dec. 31, 2015    Dec. 31, 2014

Net sales                                        $23,928              $24,101            $23,082

Warranty expense                                366                     610                    372

Warranty expenses to

 net sales rate                              1.5296%             2.5310%              1.6116%

Average warranty expenses to net sales rate = 1.89% (5.6722/3)

Thus, the average warranty expense to net sales rate over the past three years is 1.89%.

Learn more about preparing income statements at brainly.com/question/24498019