A Company Sold $12,000 Worth of Trampolines with an Extended

question 177

Multiple Choice

A company sold $12,000 worth of trampolines with an extended warranty. It estimates that 2% of these sales will result in warranty work. The company should:

• A) Consider the warranty expense a remote liability since the rate is only 2%.
• B) Recognize warranty expense at the time the warranty work is performed.
• C) Recognize warranty expense and liability in the year of the sale.
• D) Consider the warranty expense a contingent liability.
• E) Recognize warranty liability when the company purchases the trampolines.

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Definitions:

Input

Resources such as labor, materials, and capital used in the production process to create goods or services.

Marginal Products

The additional output resulting from a one-unit increase in the use of a variable input, holding all other inputs constant.

Exponents

Mathematical expressions denoting the power to which a number or variable is raised, indicating repeated multiplication.

Production Function

An equation that specifies the amount of product that can be produced from different quantities of inputs.