A Small Firm Allocates 28% of Its Gross Profits into an Account

question 54

Multiple Choice

A small firm allocates 28% of its gross profits into an account for insurance. Last year, the firm's gross profit was $400,000. What amount was deposited into the insurance account?

• A)$100,000
• B)$108,000
• C)$109,500
• D)$112,000
• E)$128,000

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Definitions:

Product Warranty Payable

A liability account that represents the amount a company expects to pay to repair or replace products under warranty.

Matching Concept

A fundamental accounting principle that requires expenses to be recorded in the same period as the revenues they help generate.

Product Warranty Expense

The cost associated with repairing or replacing products under warranty, recognized by companies to cover future warranty claims.

Warranty Repairs

Services offered for free by a manufacturer or seller to correct defects or malfunctions within a certain period after purchase.