Phoenix Music Company Manufactures and Sells Stereo Systems That Include

Multiple Choice

Phoenix Music Company manufactures and sells stereo systems that include an assurance-type warranty for the first 120 days. Phoenix also offers an optional extended coverage plan under which it will repair or replace any defective part for 2 years beyond the expiration of the assurance-type warranty. The total transaction price for the sale of the stereo system and the extended warranty is $2,000. The standalone price of each is $1,600 and $400, respectively. The estimated cost of the assurance-warranty is $200. The amount assigned to the assurance warranty as unearned warranty revenue should be

A) $2,000
B) $1,600
C) $400
D) $200