Chapter 10 Flashcards
1
Q
258. Which of the following is no an estimated liability? A. Income taxes paid B. Allowance for bad debts C. Product warranties D. Retirement obligations
A
B
2
Q
259. The estimated warranty obligation at the end of the financial year is best described as which of the following ? A. Contingent liability B. Unrecognized liability C. Uncertain liability D. Constructive liability E. Liability
A
E
3
Q
261. Excursion Camera Co. was organized to sell a single product that carries a 45-day warranty against defects. Engineering estimates indicate that 4% of the units sold will prove defective and require an average repair cost of $25 per unit. During Expedition’s first month of operations, total sales were 800 units; by the end of the month, 15 defective units had been repaired. The liability for product warranties at month-end should be A. $1,175 B. $425 C. $375 D. $800 E. None of the above
A
Answer: B Chapter: 9 Explanation: 800 x 0.04 x $25 = warranty expense of $800 Repaired $25 x 15= $375 Year-end liability = $425 ($800-$375)
4
Q
- A contingent liability should be recorded in the accounts
A. If the amount is due in cash within one year
B. If the amount can be reasonably estimated
C. If the related future event will probably occur
D. Both b and c
E. Both a and c
A
D
5
Q
- The beginning balance in the Warranty Payable account was $50,000. Sales were $900,000 and warranty costs were estimated at 7% of sales. During the year, $55,000 was paid to settle warranty claims. As a result of these transactions, what is the amount of warranty expense for the year and what is the ending balance in. Warranty Payable?
A. $50,000 Warranty Expense and $63,000 Warranty Payable
B. $63,000 Warranty Expense and $58,000 Warranty Payable
C. $55,000 Warranty Expense and $63,000 Warranty Payable
D. $113,000 Warranty Expense and $58,000 Warranty Payable
A
B
6
Q
- Warranty expense should be recorded in the period:
A. The product is paid for by the customer
B. Immediately following the period in which the product is sold
C. The product sold is repaired or replaced
D. The product is sold and recognized as sales
A
D
7
Q
- Failure to accrue interest expense results in:
A. An understatement of net income and understatement of liabilities
B. An understatement of net income and an overstatement of liabilities
C. An overstatement of net income and overstatement of liabilities
D. An overstatement of net income and understatement of liabilities
A
D
8
Q
- The journal entry to record the actual warranty expenditures in 2017 is:
A. Debit Warranty Provision 10,600; Credit Cash 10,600
B. Debit Warranty Provision 11,250; Credit Cash 11,250
C. Debit Warranty expense 10,600; Credit Warranty Provision 10,600
D. Debit Warranty Provision 11,250; Credit Warranty expense 11,250
A
A
9
Q
284. The balance in the Warranty Provision account at the end of year 2017 is: A. $1,700 B. $2,350 C. $11,250 D. $650
A
Answer: D Chapter: 9 Explanation: $375,000 x 3/100 = $11,250 $11,250 - $10,600 = $650
10
Q
- Amortizing the discount on a bond payable:
A. Reduces the interest expense for the period
B. Increases the book value of bonds payable
C. Increases the semiannual cash payment for interest
D. B and C are correct
A
B
11
Q
- ABC Company paid $750 cash to replace a part on equipment sold under warranty. To recognize the payment, which of the following are correct?
A. Debit Warranty Provision and credit Cash
B. Debit Warranty Expense and credit Cash
C. Debit Equipment Expense and credit Cash
D. Debit Parts Expense and credit Cash
A
A
12
Q
- ABC Company, a start-up company, gives a one-year warranty on its products. The company had sales in 2016 and 2017 of $250,000 and $375,000, respectively. For simplicity, we assume that all sales took place on 31 December. ABC Company estimates warranty expenses at 3% of sales. Actual warranty expenses were $5,600 in 2017, related to the sales made in 2016. The journal entry to record the warranty expense in 2016 is:
A. Debit Warranty Provision 7,500; Credit Warranty expense 7,500
B. Debit Warranty Provision 7,500; Credit Cash 7,500
C. Debit Warranty expense 7,500; Credit Warranty Provision 7,500
D. Debit Warranty expense 5,600; Credit Warranty Provision 5,600
A
C
Explanation:
$250,000 x 3/100 = $7,500
13
Q
289. ABC Company, a start-up company, gives a one-year warranty on its products. The company had sales in 2016 and 2017 of $250,000 and $375,000, respectively. For simplicity, we assume that all sales took place on 31 December. ABC Company estimates warranty expenses at 3% of sales. Actual warranty expenses were $5,600 in 2017, related to the sales made in 2016. The balance in the Warranty Provision account at the end of year 2017 is: A. $1,700 B. $2,350 C. $11,250 D. $650
A
Answer: C
$375,000 x 3/100 = $11,250
14
Q
- Warranty expense should be recorded in the period:
A. The product is paid for by the customer
B. The product is sold and recognized as sales
C. Immediately following the period in which the product is sold
D. The product sold is repaired or replaced
A
B
15
Q
297. ABC Company offers a one-year warranty on its products. The beginning balance o 1 January 2017 the Warranty Provision account is $50,000. During the year, $35,000 was paid to settle warranty claims on products sold on the previous year. Assume that in 2017 all the sales were made at year-end and that they amount to $900,000. At 31 December 2017, ABC Company needs to adjust the warranty provision and estimates that the warranty costs will be 7% of sales. What is the amount of warranty expense for the year? A. $63,000 B. $48,000 C. $55,000 D. $50,000
A
Answer: C Chapter: 9 Explanation: $900,000 x 7/100 = $63,000 $50,000 - $35,000 = $15,000 $63,000 - $15,000 = $48,000
