t6 Statement 1: Assurance-type warranty refers to a warranty that the product meets agreed-uponspecifications in the contract at the time the product is sold.Statement 2: Companies charge to expense the employees' salaries and wages, advertising, andgeneral and administrative expenses because these costs occur even if the company did not sellthe service-type warranty.Statement 3: If the warranty is based on agreed-upon specifications, warranty expense isrecognized based on associating cause and effect. *O Only two statements are correct.O All of the statements are incorrect.O All of the statements are correct.O Only one statement is correct.

In the given question whether the statements are correct or incorrect needs to be determined

Answered: Statement 1: Assurance-type warranty…

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 54BE: Contingent Liabilities Many companies provide warranties with their products. Such warranties...

See similar textbooks

Similar questions

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.
Which of the following statements is not true regarding the treatment of warranties under the new revenue recognition guidance in ASC Topic 606? A warranty that assures the product is free of defects is not a distinct performance obligation. Warranties that provide services beyond assuring the product is defect-free at the time of sale are separate performance obligations. A warranty that covers services that are normally considered routine maintenance is an assurance warranty. The length of the warranty period should be considered.
[S1] Instead of PFRS 17, the standard applicable to contracts that principally transfer financial risk, such as credit derivative, will be PFRS 9. [S2] If an entity gives a product warranty that has been issued directly by a manufacturer, dealer, or retailer, the standard that is likely to cover this warranty will be PFRS 9, not PFRS 17. [A] both are true [B] both are false [C] S1 is true [D] S2 is true A franchise contract involves two performance obligations to performed at points in time. Which of the following is FALSE? a stan [A] If each of the performance obligation has a stand alone price, the transaction price will be allocated to each according to their relative prices. [B] If one performance obligation does not have a stand alone price, the transaction price will be allocated first to the obligation with the stand-alone price and the remainder to the other obligation. [C] The completion of one performance obligation allows the franchisor to recognized Franchise Revenue…
12 Under PFRS 15, when shall a franchisor recognizes revenue from its contingent franchise fee, also known as sales-based royalty revenue? Group of answer choices When the franchisor satisfies the performance obligation in relation to the initial franchise fee based on the accounting estimate using historical evidence When the sales of the franchisee occur When the franchisee signs the document evidencing the franchise agreement When the franchisor collected the nonrefundable upfront fee
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
Which of the following is NOT an example of a contingency? Salaries payable to top management Potential expense related to repair or replace products sold under warranty Note receivable sold with recourse An amount potentially payable to settle a lawsuit All the other alternatives are contingencies
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.
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.
(Fundamentals of Revenue Recognition) Respond to the questions related to the following statements.1. A wholly unperformed contract is one in which the company has neither transferred the promised goods or services to the customer nor received, or become entitled to receive, any consideration. Why are these contracts not recorded in the accounts?2. Performance obligations are the unit of account for purposes of applying the revenue recognition standard and therefore determine when and how revenue is recognized. Is this statement correct?3. Elaina Company contracts with a customer and provides the customer with an option to purchase additional goods for free or at a discount. Should Elaina Company account for this option?4. The transaction price is generally not adjusted to reflect the customer’s credit risk, meaning the risk that the customer will not pay the amount to which the entity is entitled to under the contract. Comment on this statement.
When an entity breaches under a long-term loan agreement on or before the end of the reporting period with the effect that the liability becomes payable on demand, the liability is classified as Current under all circumstances Noncurrent under all circumstances Current if the lender has agreed after the reporting period and before the issuance of the statements not to demand payment as a consequence of the breach. Noncurrent if the lender agreed after the reporting period to provide grace period for at least twelve months after the reporting period.
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.
Access the FASB Accounting Standards Codification at the FASB website ( asc.fasb.org ) Required: Determine the specific citation for accounting for each of the following items: 1. If it is only reasonably possible that a contingent loss will occur, the contingent loss should be disclosed. 2. Criteria allowing short-term liabilities expected to be refinanced to be classified as long-term liabilities. 3. Accounting for the revenue from separately priced extended warranty contracts. 4. The criteria to determine if an employer must accrue a liability for vacation pay.

SEE MORE QUESTIONS

Recommended textbooks for you

Cornerstones of Financial Accounting

Accounting

ISBN:

9781337690881

Author:

Jay Rich, Jeff Jones

Publisher:

Cengage Learning

Intermediate Accounting: Reporting And Analysis

Accounting

ISBN:

9781337788281

Author:

James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:

Cengage Learning

Principles of Accounting Volume 1

Accounting

ISBN:

9781947172685

Author:

OpenStax

Publisher:

OpenStax College

Cornerstones of Financial Accounting

Accounting

ISBN:

9781337690881

Author:

Jay Rich, Jeff Jones

Publisher:

Cengage Learning

Intermediate Accounting: Reporting And Analysis

Accounting

ISBN:

9781337788281

Author:

James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:

Cengage Learning

Principles of Accounting Volume 1

Accounting

ISBN:

9781947172685

Author:

OpenStax

Publisher:

OpenStax College

Financial Accounting Intro Concepts Meth/Uses

Finance

ISBN:

9781285595047

Author:

Weil

Publisher:

Cengage

SWFT Comprehensive Vol 2020

Accounting

ISBN:

9780357391723

Author:

Maloney

Publisher:

Cengage

SWFT Comprehensive Volume 2019

Accounting

ISBN:

9780357233306

Author:

Maloney

Publisher:

Cengage

SEE MORE TEXTBOOKS