Examples of Contingent Liabilities Flashcards
1
Q
What is the difference between a regular warranty and an extended warranty?
A
A regular warranty is apart of the product cost- it is assurance that the product will function properly.
Extended warranty is a separate cost to the customer and a distinct performance obligation.
2
Q
How are extended warranties accounted for?
A
They are treated as a separate performance obligation under the revenue recognition standards.
Example: 4-year warranty for 1,000 dollars
Cash $1,000 Unearned Rev (1000)
Assume warranty revenue is recognized on a straight line basis
Unearned revenue 250 Warranty revenue (250)
3
Q
What is the difference between a rebate and premium
A
Rebate - cash payments after sale
Premium are inventory items to customer after sale
