Chapter 11, Problem 11QS

To determine

Concept:

Contingent expenses and contingent liabilities

These are expenses and liabilities that are conditional in nature and their future occurrence is conditional on the happening or not happening of certain events.

An example of this category of expense and liability are warranties. Warranty expenses and warranty liability refer to the costs of repairing defect products that have been sold and are in the warranty period.

Every sold finished good comes with a warranty. A warranty can be invoked when the product is defective and there is no fault of the consumer. Warranty costs are recorded as estimates based on studies and past trends in the financial statements.

The correct method of recording business transactions for each of the given scenarios.