Case Dell Computer

Dell Computer

1. a. Yes, the warrant liabilities are divided into a current and a non-current portion, and Dell has continuously reported non-current balance of its warranty liability in the past.

b. According to Note 9, Dell paid $1,032 to service their product warranties during FY2012.

c. i) The actual amount that Dell reported as warranty expense during FY2012 is $1,025.

ii) The product quality has increased in FY2012 since the accrual rate for warranties decreased to 2.05% in 2012 from 2.09% in 2011.

d. The balance of Dell’s warranty liability at the end of FY2012 was reported as to be $888, which is less than the total future cost of $1,000, thus it is understated.

2. a. The total liability that Dell has accrued from sales warranties is equal to the balance of deferred extended warranty revenue at the end of FY2012, which was $7,002.

b. Dell recognized $3,715 as its warranty revenue during FY2012.

c. Dell will recognize $3,265, which is equal to the current portion of the deferred warranty balance at the end of FY2012, as warranty revenue in FY 2013.

d. i) Revenue in Q1 of 2013 is calculated as follows:

actual cost for servicing saleswarrantiesQ 1Expected spending for outstanding sales warranties

x deferred extended warranty revenue FY 2012

$700$5,000

x $7,002=$980.28

ii) Gross margin in Q1 of 2013 is $280.28 and gross margin rate is 28.59%.