Recording Estimated Product Warranty Expense in the Year of the Sale

question 171

Multiple Choice

Recording estimated product warranty expense in the year of the sale best follows which of the following accounting principles?

• A)Matching
• B)Consistency
• C)Historical cost
• D)Full disclosure

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Definitions:

Firm's Beta

A measure of a stock's volatility in relation to the overall market; a beta greater than 1 means the stock is more volatile than the market, while a beta less than 1 means it is less volatile.

Single-Factor Market Model

A financial model that explains a security's returns as the outcome of a single market-wide factor and the security's sensitivity to that factor.

Unsystematic Risk

The risk associated with a specific company or industry that can be mitigated through diversification.

Residuals

Residuals are differences between observed and predicted values in statistical models, used to assess the fit of models to data.