Question 1

Describe how to account for warranty costs if the warranty is determined to be a extended warranty? A base warranty?

Accepted Answer

For an extended warranty,a company defers revenue from the sale of the warranty contract and generally recognizes it as the company satisfies its performance obligation,usually on a straight-line basis over the life of the contract.Any costs necessary to satisfy the extended warranty are generally expensed as incurred.For a base warranty,a company recognizes the estimated warranty expense and a liability for future performance in the period of sale.Any costs incurred to satisfy the base warranty generally reduce the warranty liability.

Question 2

Accounting for product warranty costs under an base warranty ________.

Accepted Answer

A) is required for income tax purposes 
B) charges an expense account when the seller performs in compliance with the warranty 
C) is frequently justified on the basis of expediency when warranty costs are immaterial 
D) should be used whenever the warranty is an integral and inseparable part of the sale 
A) is required for income tax purposes 
B) charges an expense account when the seller performs in compliance with the warranty 
C) is frequently justified on the basis of expediency when warranty costs are immaterial 
D) should be used whenever the warranty is an integral and inseparable part of the sale D

Question 3

Warranties that cover longer time periods are more likely to be base warranties.

Accepted Answer

A) True 
 B)False  False

Question 4

Which of the following best describes the accounting for base warranty costs?

Accepted Answer

A) expensed when paid 
B) expensed when obligations are probable and estimable 
C) expensed based on estimate in year of sale 
D) expensed when warranty claims are certain 
A) expensed when paid 
B) expensed when obligations are probable and estimable 
C) expensed based on estimate in year of sale 
D) expensed when warranty claims are certain

Question 5

A extended warranty exists if the customer has the option to purchase the warranty separately.

Accepted Answer

A) True 
 B)False

Question 6

Big Dots provides a one-year warranty with all its products it sells.It estimates that it will sell 350,000 units of its product for the year ended December 31,2016,and that its total revenue for the product will be $105,000,000.It also estimates that 75% of the product will have no defects,5% will have major defects,and 20% will have minor defects.The cost of a minor defect is estimated to be $6 for each product repaired,and the cost for a major defect cost is about $21.The company also estimates that the minimum amount of warranty expense will be $1,500,000 and the maximum will be $6,000,000.Prepare the journal entry for 2016 under the warranty.

Accepted Answer

The answer of Big Dots provides a one-year warranty with...

Question 7

During 2015,Blevert Co.introduced a new line of machines that carry a three-year warranty against manufacturer's defects.Based on industry experience,warranty costs are estimated at 1% of sales in the year of sale,3% in the year after sale,and 5% in the second year after sale.Sales and actual warranty expenditures for the first three-year period were as follows:   What amount should Blevert report as a liability at December 31,2017?

Accepted Answer

A) $11,000 
B) $20,000 
C) $125,000 
D) $224,000 
A) $11,000 
B) $20,000 
C) $125,000 
D) $224,000

Question 8

Because the sale of a extended warranty increases sales revenue,the seller should recognize the expense of providing that warranty in the year of sale.

Accepted Answer

A) True 
 B)False

Question 9

In an extended warranty,warranty revenue is ________.

Accepted Answer

A) not recognized 
B) recognized equally over the warranty period 
C) recognized only in the last year of the warranty period 
D) recognized in the year of sale 
A) not recognized 
B) recognized equally over the warranty period 
C) recognized only in the last year of the warranty period 
D) recognized in the year of sale

Question 10

When a company sells the extended warranty contract,it records a liability for unearned revenue.

Accepted Answer

A) True 
 B)False

Question 11

An assurance-type warranty is also referred to as an extended warranty.

Accepted Answer

A) True 
 B)False

Question 12

If the warranty is required by law,it is more likely to be an base warranty.

Accepted Answer

A) True 
 B)False

Describe how to account for warranty costs if the warranty is determined to be a extended warranty? A base warranty?

Accounting for product warranty costs under an base warranty ________.

Warranties that cover longer time periods are more likely to be base warranties.

Which of the following best describes the accounting for base warranty costs?

A extended warranty exists if the customer has the option to purchase the warranty separately.

Because the sale of a extended warranty increases sales revenue,the seller should recognize the expense of providing that warranty in the year of sale.

In an extended warranty,warranty revenue is ________.

When a company sells the extended warranty contract,it records a liability for unearned revenue.

An assurance-type warranty is also referred to as an extended warranty.

If the warranty is required by law,it is more likely to be an base warranty.

The Financial Reporting Environment

Financial Reporting Theory

Judgment and Applied Financial Accounting Research

Review of the Accounting Cycle

Statements of Net Income and Comprehensive Net Income

Statements of Financial Position and Cash Flows and the Annual Report

Accounting and the Time Value of Money

Revenue Recognition

OL: Revenue Recognition

Short-Term Operating Assets: Cash and Receivables

Short-Term Operating Assets: Inventory

Long-Term Operating Assets: Acquisition, cost Allocation, and Derecognition

Long-Term Operating Assets: Departures From Historical Cost

Operating Liabilities and Contingencies

Financing Liabilities

Accounting for Stockholders Equity

Investing Assets

Accounting for Income Taxes

Accounting for Employee Compensation and Benefits

Earnings Per Share

Accounting Corrections and Error Analysis

Filters

Exam 15: OL: Operating Liabilities and Contingencies

Describe how to account for warranty costs if the warranty is determined to be a extended warranty? A base warranty?

Accounting for product warranty costs under an base warranty ________.

Warranties that cover longer time periods are more likely to be base warranties.

Which of the following best describes the accounting for base warranty costs?

A extended warranty exists if the customer has the option to purchase the warranty separately.

Because the sale of a extended warranty increases sales revenue,the seller should recognize the expense of providing that warranty in the year of sale.

In an extended warranty,warranty revenue is ________.

When a company sells the extended warranty contract,it records a liability for unearned revenue.

An assurance-type warranty is also referred to as an extended warranty.

If the warranty is required by law,it is more likely to be an base warranty.

The Financial Reporting Environment

Financial Reporting Theory

Judgment and Applied Financial Accounting Research

Review of the Accounting Cycle

Statements of Net Income and Comprehensive Net Income

Statements of Financial Position and Cash Flows and the Annual Report

Accounting and the Time Value of Money

Revenue Recognition

OL: Revenue Recognition

Short-Term Operating Assets: Cash and Receivables

Short-Term Operating Assets: Inventory

Long-Term Operating Assets: Acquisition, cost Allocation, and Derecognition

Long-Term Operating Assets: Departures From Historical Cost

Operating Liabilities and Contingencies

Financing Liabilities

Accounting for Stockholders Equity

Investing Assets

Accounting for Income Taxes

Accounting for Employee Compensation and Benefits

Earnings Per Share

Accounting Corrections and Error Analysis

Filters