Talk Unlimited Began Business on January 1,2003 $\begin{array} { l l l } \text { Prepaid Waranty } & 17,600 & \\\text { Liability for Warranties } & & 17,000 \\\end{array}$

question 106

Multiple Choice

Talk Unlimited began business on January 1,2003.The company manufactures and sells cell phones cases.The company provides a warranty on its units,whereby the company will replace any defective case for two years after the sale,at no additional cost to the customer.During 2003,Talk Unlimited had sales of $850,000.The company estimates that the cost of the warranties will be 2% of sales.No warranty claims were made in 2003.During 2004,warranty claims of $15,700 were made.All warranty claims were satisfied and paid for.What journal entry,if any,is necessary for 2003 by Talk Unlimited?

• A)No journal entry is necessary.
• B)\(\begin{array} { l l l }
• \text { Prepaid Waranty } & 17,600 & \\
• \text { Liability for Warranties } & & 17,000 \\
• \end{array}\)
• C)\(\begin{array}{lccc}
• \text { Warranty Expense } & 17,000 & \\
• \text { Liability for Warranties } & & 17,000 \\
• \end{array}\)
• D) \(\begin{array}{lccc}
• \text { Warranty Expense } & 17,000 & \\
• \text { Warranty Sales } & & 17,000 \\
• \end{array}\)
• E) \(\begin{array}{lccc}
• \text { Waranty Expense } & 17,000 & \\
• \text { Unearned Warranties } & & 17,000
• \end{array}\)

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Definitions:

Qualified Expenses

Expenses that meet the requirements set forth by tax laws or other governing bodies for eligibility for tax benefits or educational purposes.

Employer Reimbursements

Payments made by an employer to an employee to cover expenses incurred on behalf of the employer, which can be taxable or nontaxable to the employee depending on the type of expense and accounting method used.

Retirement Savings

Funds that have been set aside or invested with the goal of providing financial security for retirement.

Contributions Credit

Contributions credit generally refers to tax credits available for contributions to certain types of saving plans or charitable organizations.