If Product X Cost $50 and Had a 4 Percent $\begin{array} { l r } \text { Product Warranty Expense } & 2,000\\\text { Estimated Product Warranty Liability }&&2,000 \end{array}$

question 59

Multiple Choice

If product X cost $50 and had a 4 percent failure rate,the entry to record the estimated product warranty expense in a month when 1,000 units are sold would be

• A)
• \(\begin{array} { l r } \text { Product Warranty Expense } & 2,000\\
• \text { Estimated Product Warranty Liability }&&2,000 \end{array}\)
• B)
• \(\begin{array}{llr}
• \text { Product Warranty Expense } &200\\
• \text { Estimated Product Warranty Liability} &&200\\
• \end{array}\)
• C)
• \(\begin{array}{llr}
• \text {Product Warranty Expense } &20\\
• \text { Cash } &&20\\
• \end{array}\)
• D)
• \(\begin{array}{llr}
• \text {Estimated Product Warranty Liability } &50\\
• \text { Cash} &&50\\
• \end{array}\)

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Definitions:

Hedging

A strategy used in financial management to offset potential losses or gains that may be incurred by a companion investment, thereby reducing the risk of adverse price movements.

IFRS

International Financial Reporting Standards, a set of global accounting guidelines providing a common language for business affairs so that company accounts are understandable and comparable across international boundaries.

Gross Method

An accounting approach for recording purchases or sales of inventory where discounts are not taken into account until they are actually realized.

Forward Contract

An individualized contract between two counterparts to acquire or dispose of an asset at a fixed price on a specified future date.