Two Finance Problems 2015

1) Inline Incorporated manufactures skates and equipment for in-line skating. The company offers a
one-year warranty on all products. During 2012, the company recorded net sales of $3,887.4 million.
Historically, about 3% of all sales are returned under warranty and the cost of repairing and or
replacing goods under warranty is about 60% of retail value. Assume that at the start of the year
Inlines balance sheet included an accrued warranty liability of $18.9 million and at the end of the
year, the accrued warranty liability balance was $14.0 million.
a. How should Inline account for warranty claims?
b. Calculate Inlines warranty expense for 2012.
c. How much did Inline pay during the year to repair and or replace goods under warranty?

2) AMR Corp. disclosed the following lease information in its 2011 annual report related to its leasing
activities (in millions).

2012
2013
2014
2015
2016
Thereafter
Total
Amount representing interest
Present value of net minimum lease payments

Capital
Leases
$ 167
149
129
118
78
477
1,118
(439)
$ 679

Operating
Leases
$ 1,176
1,091
942
779
685
5,940
$10,613

a. What did AMR report on its 2011 balance sheet related to leases?
b. Calculate the lease-related liabilities that are potentially missing from AMRs 2011 balance sheet.
Assume a discount rate of 11% and assume that the payments made in 2017 and beyond are
made in 9 installments.