Shaw Company Sells 2,000 Units of Its Product for $500

question 8

Multiple Choice

Shaw Company sells 2,000 units of its product for $500 each. The selling price includes a one-year warranty on parts. It is expected that 3% of the units will be defective and that repair costs will average $50 per unit. In the year of sale, warranty contracts are honored on 40 units for a total cost of $2,000. What amount will be reported on Shaw Company's balance sheet as Estimated Warranty Liability on December 31, 2010?

• A) $2,000
• B) $3,000
• C) $1,000
• D) It cannot be determined.

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Definitions:

Product Placement

A promotional tactic where branded goods or services are featured in another company's product, such as a movie or television show, to increase visibility.

Television Shows

Programs broadcasted on TV designed for entertainment, education, or informational purposes.

High-Involvement Consumer Products

Products that require significant thought and research from consumers before purchase due to their complexity, cost, or personal importance.

Advertising Medium

A channel or tool used by companies to communicate promotional messages to target audiences, including digital, print, broadcast, and outdoor media.