During Year 1, Its First Year of Operations, Benitez Company

question 45

Multiple Choice

During Year 1, its first year of operations, Benitez Company reported sales of $800,000. At the end of Year 1, the company estimated its warranty obligation at 3% of sales. During Year 1, the company paid $13,000 cash to settle warranty claims. Which of the following statements is true?

• A)Warranty expenses would decrease net earnings by $24,000 in Year 1.
• B)Cash decreased by $13,000 as a result of the accounting events associated with warranties in Year 1.
• C)The warranties payable account has a balance of $11,000 at the end of Year 1.
• D)All of these answer choices are correct.

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