An Example of a Judgment in Accounting for Product Warranties

question 130

Multiple Choice

An example of a judgment in accounting for product warranties is ________.

• A) the items sold that are subject to warranty coverage
• B) whether a product warranty should be for one year or two years
• C) the cost of a specific replacement part
• D) the amount of warranty expense to be accrued as a percent of sales

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Definitions:

Distribution Efficiencies

The effectiveness with which a company is able to deliver its products or services to its customers in the most cost-effective manner.

Tax Shields

Reductions in income tax liability achieved through allowable deductions such as mortgage interest, depreciation, or charitable donations.

Bondholders

Investors who own bonds issued by a corporation or government, essentially lending money to the issuer in exchange for periodic interest payments and the return of principal at maturity.

Bankruptcy Probabilities

Bankruptcy Probabilities represent the likelihood of a company or entity being unable to meet its financial obligations and thus having to declare bankruptcy.