When Does Warranty Cost Appear on the Statement of Cash

question 124

Multiple Choice

When does warranty cost appear on the statement of cash flows?

• A) When there is a settlement of a warranty claim made by a customer.
• B) When the warranty obligation is recognized.
• C) When merchandise is sold.
• D) None of these.

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Definitions:

Substance Over Form

The concept that transactions and their effects should be recorded and reported in a way that reflects their economic reality rather than merely their legal form.

Legal Form

The specific legal structure of an entity or agreement, which determines its legal responsibilities, rights, and the regulatory framework it operates within.

Net Present Value

A calculation used to assess the profitability of an investment by summing the present values of its expected cash flows minus the initial investment cost.

Financial Instruments

Agreements resulting in one party acquiring a financial asset while the opposite party incurs a financial liability or issues an equity instrument.