Concerning Accounting for Warranties, Which of the Following Statements Is

question 14

Multiple Choice

Concerning accounting for warranties, which of the following statements is true?

• A) Federal income tax regulations require companies to accrue warranty expense in the year of the sale.
• B) The modified cash basis method is required for tax reporting.
• C) The modified cash basis method uses a percentage of completion approach to warranty revenue recognition.
• D) The modified cash basis recognizes warranty expense when cash is received on the sale.

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Definitions:

Output Effect

The change in total output resulting from adjusting production levels, typically in response to changes in market demand or cost of production.

Fixed Proportions

A production process where inputs must be used in specific proportions, and the ratio of inputs cannot be easily changed.

Substitution Effect

The change in consumption patterns due to a change in relative prices, causing consumers to substitute one good for another more price-friendly option.

Marginal Productivity

The extra output that is produced by using one more unit of a factor, keeping all other factors constant.