Electronic City Sells Various Electronic Products

Multiple Choice

Electronic City sells various electronic products. With each of its products, Electronic City offers customers the option of purchasing a repair contract. Under the contracts, Electronic City will make repairs anytime during the term of the contract. Electronic City estimates that repair costs related to this year's sales will be $39,000. During the current year, Electronic City incurs repair costs of $37,000 related to prior year's contracts and $4,000 on contracts sold this year.
I.If Electronic City accounts for the contracts using the accrual method of accounting, its repair cost deduction is $39,000.
II.If Electronic City accounts for the contracts using the cash method of accounting, its repair cost deduction is $41,000.
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A) Only statement I is correct.
B) Only statement II is correct.
C) Both statements are correct.
D) Neither statement is correct.