Walter Corp If the Expense Warranty Accrual Method Is Used, What Amount

question 26

Multiple Choice

Walter Corp.introduced a new machine on January 1, 2010.The machine carried a two-year warranty against defects.The estimated warranty costs related to dollar sales were 3% in the year of sale and 5% in the year after sale.Additional information follows: $\begin{array}{lrr}&&\text { Actual Waranty }\\\text { Year } & \text { Sales } & \text { Expenditures }\\ 2010 & \$ 40,000 & \$ 600 \\2011 & 60.000 & 2,200\end{array}$
If the expense warranty accrual method is used, what amount relating to warranty expense should be reflected on the December 31, 2011 income statement?

• A)$2, 200
• B)$4, 800
• C)$5, 200
• D)$7, 400

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Definitions:

Accrue

The process of accumulating or recognizing expenses or income over time, even before cash transactions occur.

Payable

A liability to a creditor, often of a business, that represents an obligation to pay for goods or services received.

Prepaid Insurance

An asset account that represents insurance premiums paid in advance, covering future periods.

Premiums Paid

Amounts paid for insurance coverage or policies over a specified period.