CLA 1

Apple Warranties

Star Student

BUS 305: Principles of Accounting

Month Date, Year

Professor Fantastic

Westcliff University

Apple Warranties

Product warranty plays an important role in today’s market in both individual and business transactions. These warranties serve many purposes for various parties including the manufacturer protection, signaling the quality and elements of marketing strategy. A warranty is an assurance provided by the seller to the purchaser that any product sold or bought will be represented. It may be a contractual agreement between the parties and it may be implicit as well as explicit in nature. The managerial accountant has the responsibility to ascertain the amounts required to be kept under the various heads related to warranty. The warranty is claimed when a product is not able to perform the functions which were promised by the seller. CITATION WRB96 \l 1033 (W.R.Blischke, 1996)

Apple Warranty Information

Apple has been one of the largest companies in terms of warranty payments but the company has decreased its reserves from the year 2016 to 2017 showing that it expects the costs to be decreased over time. The warranty information is included under the head of contingencies because this payment is contingent upon an event.

Apple Warranties

The company offers a warranty of one year from the date of purchase by the end-user. There is also another form of warranty on the parts used to renew its hardware products. There are purchase options which can extend service coverage to many hardware products. The warranty is studied on the basis of product groups and warranties include service and support at no additional costs. Warranty terms range from three months to one year in general and three years in case of some specific products CITATION War13 \l 1033 (Warranty Week, 2013).

Warranty Reserves

The company calculates the warranty reserve in line with the revenue recognition principle. The cost of warranties can be determined based on a time when related revenue is recognized. The company does not provide any service to its customers related to software pertaining to third parties.

Effects of Results

There are two sides to this argument, the actual payments can be higher or lower as compared to the estimates. If the expenses are lower than the estimated warranty cost, there will be a short term liability for the company in the balance sheet. A higher expense will mean that the product made by the company is not up to the mark and creates too many problems for customers. Both these incidents have adverse consequences on the company. These differences will require the company to make appropriate changes to its warranty reserves CITATION JWi17 \l 1033 (J.Wild, K.Shaw, & B.Chiapetta, 2017).

Management Accountant Role

The management accountant has an important role to play in this scenario because it is his responsibility to make sure that warranty estimates are accurate. Accountants can review the past documents or annual reports of the company to assess the figures necessary to include as warranty costs and reserves. The management accountant can also assess the payments which have been made by the competitors. This historical information should include the warranty claims to be paid by the company as well as those which are against third party software and related products CITATION Vic88 \l 1033 (P.Goldberg, 1988).

Warranty Accrual Impact Factors

The reliability of any product will be the most important factor for the company to consider while deciding the amount to be kept as warranty accruals. This can be judged by analyzing the past record of the company in terms of warranties. The stance of the company in terms of customer care will also affect the number of warranty accruals. The Apple Company has been among the top 3 companies in terms of expenditures made regarding the warranties. Although the company has very high reliability regarding its products the nature of products is such that the company has to offer warranties on products themselves and on the hardware associated with them. Prices of products also affect the warranties because a customer paying higher price will definitely want that he is properly catered in case of any warranty claims.

SEC Reporting

There has been no considerable change in the requirements by SEC in terms of the warranty. It is clearly mentioned in the annual statements that any differences in the actual warranty claims and amounts set for these claims can affect the quality of financial statements of the company. These amounts have been reported under the contingencies section of the financial statements. The guarantor is not required to show the potential highest amount that can be paid as warranty claims. The product will also have the method used to calculate the amount of liability for product warranties. The beginning balance of the warranty liability will be shown by company along with any changes in the related liability sections.

Summary and Conclusions

Warranty claims form an important part of financial statements for a company like Apple which deals in technology based products. Several factors affect the warranty claims and payments made by the company. The product reliability and price play an important role in deciding on the warranty claims received and payments made. The management accountant also has an important role to play ion ascertaining the amount reserved for the warranty claims. There can be adverse consequences for the organization if the warranty claims are different than what was anticipated by the company. There is a clear distinction among the warranty claims which are made directly on the company and those related to the software related to third party CITATION Sam88 \l 1033 (Paschall, 1988).

References

BIBLIOGRAPHY J.Wild, K.Shaw, & B.Chiapetta. (2017). Fundamental Accounting Principles. New York: McGraw Hill.

P.Goldberg, V. (1988). Accountable Accountants: Is third Party liability necessary. The journal of Legal Studies, 295-305.

Paschall, S. S. (1988). Liability to Non-Clients: The Accountant's Role. Missouri Law Review, 693-730.

W.R.Blischke. (1996). Product Warranty Handbook. New York: Marcel dekker Inc.

Warranty Week. (2013, February 7). https://www.warrantyweek.com/archive/ww20130207.html. Retrieved from https://www.warrantyweek.com: https://www.warrantyweek.com/archive/ww20130207.html