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:

Hydrogeologist

A geoscientist who specializes in groundwater and surface-water investigations.

Groundwater Flow

The process where water travels through underground soil and rock, mainly driven by gravity and variations in pressure.

Groundwater Quality

Refers to the condition of groundwater in terms of chemical, physical, and biological characteristics, often relating to its suitability for a specific use like drinking or irrigation.

Exploratory Well

A drilling operation carried out to find out if there are any valuable minerals or hydrocarbons present in the subsurface.