Statement 1: The expected profit from a sales type warranty that covers several years should all be recognized in the period the warranty is sold. Statement 2: The cause for litigation must have occurred on or before the date of the financial statements to report a liability in the financial statements. a. Only statement 1 is correct b. Only statement 2 is correct c. Both statements are correct d. Both statements are incorrect
1. Statement 1: The expected profit from a sales type warranty that covers several years should all be recognized in the period the warranty is sold.
Statement 2: The cause for litigation must have occurred on or before the date of the financial statements to report a liability in the financial statements.
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect.
2. Statement 1:
Statement 2: Contingent assets are not reported in the
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect.
3. Accounting for product warranty costs under an assurance-type warranty
a. charges an expense account when the seller performs in compliance with the warranty.
b. represents accepted practice and should be used whenever the warranty is an integral and inseparable part of the sale.
c. is required for income tax purposes.
d. is frequently justified on the basis of expediency when warranty costs are immaterial.
4. Statement 1: Under an assurance-type warranty, companies charge warranty costs only to the period in which they comply with the warranty.
Statement 2: For purposes of recognizing a provision, “probable” is defined as more likely than not.
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect.
5. Soar Corporation issued a 100% share dividend of its ordinary shares which had a par value of P10 before and after the dividend. At what amount should
a. Fair value on the declaration date
b. Fair value on the payment date
c. There should be no capitalization of retained earnings.
d. Par value
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