Use the Following Information for Questions

question 68

Multiple Choice

Use the following information for questions:
Direct Sales Inc.offers a two-year warranty against failure of its products.The estimated liability is 4% of sales in the year of sale and 6% in the second year.Sales for 2010 and 2011 were: $2,500,000 and $2,800,000, respectively.They incurred no warranty costs in 2010 but in 2011 they spent $175,000 on repairs related to the warranties from 2010 and 2011.
-The warranty liability as at the end of the 2011 year was:

• A)$75,000
• B)$280,000
• C)$355,000
• D)$530,000

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Definitions:

Credit Union

A member-owned financial cooperative that provides traditional banking services.

Simple Interest

Interest calculated only on the principal amount, or the original sum of money borrowed or invested, without considering the effect of compounding over time.

Obligations

Duties or commitments that require an individual or organization to act in a certain manner, often legally binding.

Equivalent Replacement

The act or process of replacing an asset with another that performs the same function or yields the same output.