Autotether Inc

question 72

Multiple Choice

Autotether Inc. sells 1200 units of a product that has a one-year warranty on parts. The average cost of honoring one warranty contract is $60. During the year 60 contracts are honored at a cost of $3600. It is estimated that 120 contracts will be honored in the following year. The adjusting entry at the end of the current year will include a

• A) credit to Warranty Liability for $7200.
• B) credit to Warranty Liability for $10800.
• C) debit to Warranty Expense for $3600.
• D) debit to Warranty Expense for $10800.

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Definitions:

Risk Aversion

The behavior of preferring to avoid loss rather than making a gain, reflecting a preference for certainty over uncertainty.

Irrational Decision

A choice made that contradicts logical reasoning, often influenced by emotional factors or cognitive biases.

Status Quo Bias

The tendency to avoid making a decision.

Irrational Behavior

Actions or decisions that contradict logic or reasoning, often deviating from expected or standard behavior.