19) In which of the following periods should the expense for warranty costs be recorded?
A) The period when the product is sold
B) The period when the product is repaired or replaced
C) The period when cash is paid to repair or replace the product
D) The period when cash is collected for the sale of the product
20) Which of the following accounting principles requires that warranty expenses must be estimated and recognized in the same period as the related sales revenue is recognized?
A) The matching principle
B) The full disclosure principle
C) The revenue recognition principle
D) The conservatism principle
21) Booker Company reported sales revenue for 2013 of $800,000. The products were sold with a six-month warranty. Members of Booker's management estimate the cost of the warranty will be equal to 3% of sales revenue. Which of the following is included in the entry to record the actual amounts paid out as a result of warranty claims?
A) A debit to Estimated warranty payable for the actual amount of payments
B) A credit to Estimated warranty payable for $24,000
C) A debit to Estimated warranty payable for $24,000
D) A debit to Warranty expense for the actual amount of payments
22) Which of the following is included in the entry to record warranty expense?
A) A debit to Warranty expense
B) A credit to Inventory
C) A credit to Warranty expense
D) A debit to Estimated warranty payable
23) Which of the following is included in the entry to record estimated warranty payable?
A) A credit to Estimated warranty payable
B) A credit to Inventory
C) A credit to Warranty expense
D) A debit to Estimated warranty payable
24) In which of the following periods should the estimated warranty liability be debited?
A) The period when cash is paid to repair or replace the product
B) The period when the product is sold
C) The period when cash is collected for the sale of the product
D) The period when the product is shipped to the customer
25) Which of the following is NOT an exact liability?
A) FICA tax payable
B) Income tax payable
C) Warranty payable
D) Accounts payable
26) Which of the following is the proper treatment for a liability that exists, but the exact amount of which is not known?
A) The liability should be treated as a contingent liability.
B) The amount of the liability should be estimated and recorded.
C) The liability should be ignored.
D) The liability should be reported in the notes to the financial statements.
27) A pending lawsuit which might result in a liability is considered a(n):
A) contingent liability.
B) current liability.
C) legal liability.
D) unearned revenue.
28) Franconia Sales offers warranties on all their electronic goods. Warranty expense is estimated at 2% of sales revenue. In 2013, Franconia had $500,000 of sales. In the same year, Franconia paid out $7,500 of warranty payments. Which of the following is the entry needed to record the estimated warranty expense?
A)
Estimated warranty payable
|
7,500
|
|
Cash
|
|
7,500
|
B)
Warranty expense
|
7,500
|
|
Estimated warranty payable
|
|
7,500
|
C)
Warranty expense
|
10,000
|
|
Estimated warranty payable
|
|
10,000
|
D)
Warranty expense
|
10,000
|
|
Sales revenue
|
|
10,000
|