A Company Sold $12,000 Worth of Bicycles with an Extended

Multiple Choice

A company sold $12,000 worth of bicycles with an extended warranty. The company's experience is that warranty expense averages 2% of sales. The company should:

A) Consider the warranty expense a remote liability since the rate is only 2%.
B) Recognize warranty expense and liability in the year of the sale.
C) Consider the warranty expense a contingent liability.
D) Recognize warranty expense at the time the warranty work is performed.
E) Recognize warranty liability when the company purchases the bicycles.