Use of the Accrual Method in Accounting for Product Warranty

question 19

Multiple Choice

Use of the accrual method in accounting for product warranty costs

• A) is required for federal income tax purposes.
• B) is frequently justified on the basis of expediency when warranty costs are immaterial.
• C) finds the expense account being charged when the seller performs in compliance with the warranty.
• D) represents accepted practice and should be used whenever the warranty is an integral and inseparable part of the sale.

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Definitions:

Common Stock

A type of equity security that represents ownership in a corporation, providing voting rights, and entitling holders to a share of the company's success through dividends and/or capital appreciation.

Net Increase

The total growth in value or quantity after accounting for all additions and subtractions.

Stock Dividend

A payment to shareholders made in the form of additional shares rather than cash, often used by companies to conserve cash while still providing a dividend.

Operating Cash Inflows

Cash received by a company from its ongoing, regular business activities, such as sales revenue.