A Firm Sells Products Covered by a Three-Year Warranty

question 58

Multiple Choice

A firm sells products covered by a three-year warranty.From the past experience of the other firms in the industry, the firm expects to incur warranty costs equal to 1% of sales.Firm sales were $40,000 and $50,000 in 2013 and 2014 respectively.In 2014, the firm spent $200 to repair goods sold in 2013, and $300 to repair goods sold in 2014.The firm received no warranty servicing demands from customers in 2013, the firm's first year of operations.What is the balance in the warranty liability account on January 1, 2014?

• A)$300
• B)$0
• C)$500
• D)$400

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Definitions:

Non-Controlling Interest (NCI)

The portion of equity ownership in a subsidiary not attributable to the parent company, reflecting the minority shareholders' share of the subsidiary's net assets and profits.

Statement Of Financial Position

A financial statement that provides a snapshot of a company's assets, liabilities, and shareholders' equity at a specific point in time, also known as a balance sheet.

IFRS 3

An International Financial Reporting Standard that deals with the accounting treatment for all business combinations.

Business Combinations

Transactions or events in which one entity gains control over one or more other businesses, often resulting in consolidations or acquisitions.