MTE Q2 Flashcards
What is the stand-alone selling price of free product coupons?
a. Nothing
b. Fair value less cost of disposal
c. Selling price of free product
d. Selling price of free product adjusted for expected redemption
d. Selling price of free product adjusted for expected redemption
The nonredemption of gift certificates is called
a. Breakage
b. Forfeiture
c. Rebate
d. Waiver
a. Breakage
Which of the following is a characteristic of the accrual of warranty but not the sale of warranty?
a. Warranty liability
b. Warranty expense
c. Unearned warranty revenue
d. Warranty revenue
a. Warranty liability
What is the classification of the estimated warranty liability in a three-year warranty?
a. Noncurrent
b. Current
c. Partly current and partly noncurrent
d. No need for disclosure
c. Partly current and partly noncurrent
The cost of customer premium offer should be charged to expense sold
a. When the related product is sold
b. When the premium offer expires
c. Over the life cycle of the product
d. When the premium is claimed
a. When the related product is sold
Which of the following best describes the accrual approach of accounting for warranty cost?
a. Expensed when paid
b. Expensed when warranty claims are certain
c. Expensed based on estimate in year of sale
d. Expensed when incurred
c. Expensed based on estimate in year of sale
Providing a monetary rebate program
a. Is accounted for similarly to a premium offer
b. Creates an expense for the seller in the period of sale
c. Creates a liability for the seller at the time of sale
d. Is normally not recognized
c. Creates a liability for the seller at the time of sale
What is the accounting for the transaction price of a contract of sale with customer coupons for free product, discount or rebate?
a. Entirely as product sales revenue
b. Allocated to customer options equal to stand alone selling and the balance to product sales
c. Allocated between product sales revenue and coupons based on stand alone selling price
d. Entirely as coupon revenue
c. Allocated between product sales revenue and coupons based on stand alone selling price
The accrual approach in accounting for warranty
a. Is required for income tax reporting
b. Is frequently justified on the basis of expediency
c. Finds the expense account being charged when the seller performs in compliance with the warranty
d. Should be used whenever the warranty is an integral and inseparable part of the sale
d. Should be used whenever the warranty is an integral and inseparable part of the sale
The accounting concept that requires recognition of a liability for customer premium offer is
a. Time period
b. Prudence
c. Historical cost
d. Matching principle
d. Matching principle
Apollo Q. Company includes one coupon in each box of laundry soap it sells. A towel is offered as a premium to customers whos send in 10 coupons and a remittance of P10.
Distribution cost of premium is P5. Experience indicates that only 25% of the coupons will be redeemed.
Boxes of soap sold
- (2022) 2,000,000
- (2023) 2,500,000
Number of towels purchased at P50 each
- (2022) 50,000
- (2023) 80,000
Coupons redeemed
- (2022) 400,000
- (2023) 700,000
What amount should be reported as estimated liability on December 31, 2022?
a. 1,000,000
b. 1,100,000
c. 450,000
d. 900,000
What amount should be reported as premium expense for 2023?
a. 3,000,000
b. 2,812,500
c. 3,375,000
d. 4,000,000
What amount should be reported as premium expense for 2022?
a. 2,500,000
b. 2,250,000
c. 2,400,000
d. 2,700, 000
What amount should be reported as estimated premium liability on December 31, 2023?
a. 1,000,000
b. 1,250,000
c. 1,125,000
d. 112,500
Estimated Liability on 2022
c. 450,000
Premium Expense for 2023
b. 2,812,500
Premium Expense for 2022
b. 2,250,000
Estimated Premium Liability on 2023
d. 112,500
Alice G. Company sold electrical goods covered by a one-year warranty for any defects. Of the sales of P70,000,000 for the year, the entity estimated that 34 will have major defect, 5% will have minor defect and 92% will have no defect.
The cost of repairs would be P5,000,000 if all the products sold had major defect and P3,000,000 if all had minor defect.
What amount should be recognized as a warranty liability?
a. 8,000,000
b. 5,600,000
c. 300,000
d. 190,000
c. 300,000
