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.

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.

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter8: Current And Contingent Liabilities

Section: Chapter Questions

Problem 14MCQ

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Statement I. If the pattern of the repairs cannot be established and the obligation for warranty cannot be reasonably estimated, warranty costs are recorded as expense when repairs are actually made, thus there is no accrual of liability.Statement II. The transaction price for the sale of the product with warranty is allocated between the stand-alone selling prices of the product and warranty. A. Both statements are true. B. Both statements are false. C. Statement I is true; Statement II is false. D. Statement I is false; Statement II is true.
10. 12. The expected profit from a sales type warranty that all be recognized in the period the warranty is sold. 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 provision should be used only for the purpose for which it was originally recognized or set up.
53. Which type of warranty is/are accounted for as a separate performance obligation: 1- A normal warranty that the customer can purchase the warranty separately, 2- A normal warranty that provides a service in addition to assurance that the product complies with specifications, 3- A normal warranty that provides assurance that the product complies with specifications Select one: а. b. 2 C. 1 d. 1 and 3 е. 1 and 2
18. Accounting for product warranty costs under an assurance-type warranty * a. is required for income tax purposes. b. is frequently justified on the basis of expediency when warranty costs are immaterial. c. charges an expense account when the seller performs in compliance with the warranty. d. represents accepted practice and should be used whenever the warranty is an integral and inseparable part of the sale.
40. When an entity breaches an undertaking under a long-term loan agreement on or before the balance sheet date with the effect that the liability becomes payable on demand, (choose the incorrect statement) a. The liability is classified as non-current, even if the lender has agreed, after the balance sheet date and before the authorization of the financial statements for issue, not to demand payment as a consequence of the breach b. The liability is classified as current because, at the balance sheet date, the entity does not have an unconditional right to defer its settlement for at least twelve months after that date. c. The liability is normally classified as current; however, the liability is classified as non-current if the lender agreed by the balance sheet date to provide a period of grace ending at least twelve months after the balance sheet date, within which the entity can rectify the breach and during which the lender cannot demand immediate repayment. d. The…
2. Which of the following best describes the accounting for assurance-type warranty costs? * 1 point a. Expensed when paid. b. Expensed when warranty claims are certain. c. Expensed based on estimate in year of sale. d. Expensed when incurred.
[S1] Instead of PFRS 17, the standard applicable to contracts that principally transfer financial risk, such as credit derivative, will be PFRS 9. [S2] If an entity gives a product warranty that has been issued directly by a manufacturer, dealer, or retailer, the standard that is likely to cover this warranty will be PFRS 9, not PFRS 17. [A] both are true [B] both are false [C] S1 is true [D] S2 is true A franchise contract involves two performance obligations to performed at points in time. Which of the following is FALSE? a stan [A] If each of the performance obligation has a stand alone price, the transaction price will be allocated to each according to their relative prices. [B] If one performance obligation does not have a stand alone price, the transaction price will be allocated first to the obligation with the stand-alone price and the remainder to the other obligation. [C] The completion of one performance obligation allows the franchisor to recognized Franchise Revenue…
S1: In note discounting treated as a secured borrowing, a contingent liability is recognized on the date of discounting. S2: In note discounting treated as a conditional sale, an accounting liability is recorded an amount equal to the face amount of the note receivable discounted. A) Both statements are correct. B) Both statements are incorrect. C)Only S1 is correct. D) Only S2 is correct
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When an entity breaches a covenant under a long-term loan agreement on or before the end of the reporting periodwith the effect that the liability becomes payable on demand, the liability is classified as noncurrent whenI. The lender has agreed after the end if the reporting period and before the financial statements areauthorized for issue not to demand payment as a consequence of the breach.II. The lender has agreed on or before the end of the reporting period to provide a grace period ending atleast twelve months after that date. a. Both I and IIb. Neither I and IIc. I onlyd. II only
Which statements are correct?