All of the following statements related to recording warranty expense are true except: Top of Form Multiple Choice Warranty expense should be recorded in the period when the warranty service is performed. Warranty costs are probable and the amount can be estimated. Estimated warranty expense is recorded when revenue from the sale of the product or service is reported. The seller reports a warranty obligation as a liability. 0r Recording estimated warranty expense requires a debit to Warranty Expense.

All of the following statements related to recording warranty expense are true except: Top of Form Multiple Choice Warranty expense should be recorded in the period when the warranty service is performed. Warranty costs are probable and the amount can be estimated. Estimated warranty expense is recorded when revenue from the sale of the product or service is reported. The seller reports a warranty obligation as a liability. 0r Recording estimated warranty expense requires a debit to Warranty Expense.

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter8: Current And Contingent Liabilities

Section: Chapter Questions

Problem 15MCQ

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All of the following statements related to recording warranty expense are true except: Multiple Choice Warranty expense should be recorded in the period when the warranty service is performed. Warranty costs are probable and the amount can be estimated. The seller reports a warranty obligation as a liability. Estimated warranty expense is recorded when revenue from the sale of the product or service is reported. Recording estimated warranty expense requires a debit to Warranty Expense.
2. Which of the following best describes the accounting for assurance-type warranty costs? * 1 point a. Expensed when paid. b. Expensed when warranty claims are certain. c. Expensed based on estimate in year of sale. d. Expensed when incurred.
19. Which of the following best describes the accounting for assurance-type warranty costs? * a. Expensed when paid. b. Expensed when warranty claims are certain. c. Expensed based on estimate in year of sale. d. Expensed when incurred.
Statement 1: Under an assurance-type warranty, companies charge warranty costs only to the period in which they comply with the warranty. Statement 2: For purposes of recognizing a provision, “probable” is defined as more likely than not. a. Only statement 1 is correct b. Only statement 2 is correct c. Both statements are correct d. Both statements are incorrect.
15. The expense warranty accrual method a. violates the matching conceptb. requires recognition in the period of sale of the estimated warranty expense and warrantyliabilityc. separates accounting for two components of the sales price: the price of the product andthe price of the warrantyd. debits warranty costs to expense in the period when warranty expenditures are made
1. Statement 1: The expected profit from a sales type warranty that covers several years should all be recognized in the period the warranty is sold. Statement 2: The cause for litigation must have occurred on or before the date of the financial statements to report a liability in the financial statements. a. Only statement 1 is correct b. Only statement 2 is correct c. Both statements are correct d. Both statements are incorrect. 2. Statement 1: Contingent liabilities are not reported in the financial statements but may be disclosed in the notes to the financial statements if the likelihood of an unfavorable outcome is possible. Statement 2: Contingent assets are not reported in the statement of financial position. a. Only statement 1 is correct b. Only statement 2 is correct c. Both statements are correct d. Both statements are incorrect. 3. Accounting for product warranty costs under an assurance-type warranty a. charges an expense account when the seller performs in…
S1: In note discounting treated as a secured borrowing, a contingent liability is recognized on the date of discounting. S2: In note discounting treated as a conditional sale, an accounting liability is recorded an amount equal to the face amount of the note receivable discounted. A) Both statements are correct. B) Both statements are incorrect. C)Only S1 is correct. D) Only S2 is correct
7. TRUE or FALSE. In discounting of customer’s note under conditional sale, an account “Note Receivable-Discounted” is credited. This account is a liability which will be presented under the current portion.
What accounts are used to record a contingent warranty liability that is probable and estimable but has yet to be fulfilled? A. warranty liability and cash B. warranty expense and cash C. warranty liability and warranty expense, cash D. warranty expense and warranty liability
18. Accounting for product warranty costs under an assurance-type warranty * a. is required for income tax purposes. b. is frequently justified on the basis of expediency when warranty costs are immaterial. c. charges an expense account when the seller performs in compliance with the warranty. d. represents accepted practice and should be used whenever the warranty is an integral and inseparable part of the sale.
Read CA13-6 "Warranties and Loss Contingencies". Read the two situations about Benson company and Constantine Company and answer the related questions in the instructions. CA13-6. (Warranties and Loss Contingencies) The following two independent situations involve loss contingencies. Part 1: Benson Company sells two products, Grey and Yellow. Each carries a 1-year warranty. 1.Product Grey—Product warranty costs, based on past experience, will normally be 1% of sales. 2.Product Yellow—Product warranty costs cannot be reasonably estimated because this is a new product line. However, the chief engineer believes that product warranty costs are likely to be incurred. Instructions How should Benson report the estimated product warranty costs for each of the two types of merchandise above? Discuss the rationale for your answer. Do not discuss disclosures that should be made in Benson's financial statements or notes. Part 2: Constantine Company is being sued for $4,000,000 for an injury…
Read CA13-6 "Warranties and Loss Contingencies". Read the two situations about Benson company and Constantine Company and answer the related questions in the instructions. CA13-6. (Warranties and Loss Contingencies) The following two independent situations involve loss contingencies. Part 1: Benson Company sells two products, Grey and Yellow. Each carries a 1-year warranty. 1.Product Grey—Product warranty costs, based on past experience, will normally be 1% of sales. 2.Product Yellow—Product warranty costs cannot be reasonably estimated because this is a new product line. However, the chief engineer believes that product warranty costs are likely to be incurred. Instructions How should Benson report the estimated product warranty costs for each of the two types of merchandise above? Discuss the rationale for your answer. Do not discuss disclosures that should be made in Benson's financial statements or notes. read CA13-6 "Warranties and Loss Contingencies". Read the two…