[The Following Information Applies to the Questions Displayed Below

question 48

Multiple Choice

[The following information applies to the questions displayed below.]
In December Year 1, Lucas Corporation sold merchandise for $10,000 cash. Lucas estimated that the warranty obligation relating to this sale is $700. On February 12, Year 2, Lucas paid cash of $550 to settle a related warranty claim by this customer.
-Which of the following summarizes the effect of the recognition of the warranty obligation to the customer who purchased this merchandise on the elements of the Year 1 financial statements?

• A) Option A
• B) Option B
• C) Option C
• D) Option D

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Definitions:

Gross Pay

The total amount of money earned by an employee before any deductions or taxes are taken out.

FUTA Tax

The tax imposed by the Federal Unemployment Tax Act, paid by employers to support state employment agencies.

SUTA Tax

State Unemployment Tax Act tax, which is a state-based tax that employers pay to fund the unemployment benefits for workers who lose their jobs.