Volt Electronics Sells Equipment That Includes a Three-Year Warranty

question 24

Multiple Choice

Volt Electronics sells equipment that includes a three-year warranty. Repairs under the warranty are performed by an independent service company under contract with Volt. Based on prior experience, warranty costs are estimated to be $25 per item sold. Volt should recognize these warranty costs:

• A) When the equipment is sold.
• B) When the repairs are performed.
• C) When payments are made to the service firm.
• D) Evenly over the life of the warranty.

---

Definitions:

Offering Price

The price at which shares of a company are initially made available for purchase during an initial public offering or other issuance.

Firm Commitment

An underwriter's guarantee to the issuer to sell an entire offering of stocks or bonds at a set price.

Offering Prospectus

A legal document issued by companies that are offering securities for sale, detailing the company's financial health and investment risks.