Shear Company Sells Computer Equipment with a 2-Year Warranty

question 17

Multiple Choice

Shear Company sells computer equipment with a 2-year warranty.Prior experience indicates that costs associated with this warranty average 1% in the first year and 2% in the second year.In 2018,Shear had sales of $1,800,000.It paid $250,000 for materials and labour to make warranty-related repairs in 2018.What amount should the warranty expense for 2018 be?

• A)$18,000
• B)$36,000
• C)$54,000
• D)$250,000

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Definitions:

Loss Carry-Back

Using a year’s capital losses to offset capital gains of previous years.

Capital Losses

Losses incurred when a capital asset is sold for less than its purchase price.

Capital Gains

The profit earned from the sale of an asset or investment that has increased in value.

Total Assets

The sum of all assets owned by a company, including current, non-current, tangible, and intangible assets.