Potassium Corp

Multiple Choice

Potassium Corp.uses the revenue approach to account for warranties.During 2017, the company sold $500,000 worth of products, all of which carried a two-year warranty (included in the price) .It was estimated that 2% of the selling price represented the warranty portion, and that 60% of this related to 2017, and 40% to 2018.Assuming that Potassium incurred costs of $3,700 to service the warranties in 2018, what is the net warranty revenue (revenue minus warranty costs) for 2018?

A) $300
B) $1,300
C) $3,700
D) $4,000