Warranty Liability

Question 1

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.

Answer 1

b. Is frequently justified on the basis of expediency.

Question 2

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

Answer 2

d. Expensed when incurred

Question 3

Which of the following best describes the expense as incurred approach of accounting for warranty cost?

a. Expensed based on estimate in year of sale
b. Expensed when liability is accrued
c. Expensed when warranty claims are certain
d. Expensed when incurred

Answer 3

d. Expensed when incurred

Question 4

What is the classification of the estimated warranty liability in a three-year warranty?

а. Noncurrent
b. Current
c. Partly current and partly noncurrent
d. No need for disclosure

Answer 4

а. Noncurrent

Question 5

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

Answer 5

a. Warranty liability