Problem 2-2 Multiple choice (IAA)

1. The accrual approach in accounting for products warrant cost

a. Is required for income tax purposes

b. Is frequently justified on the basis of expediency when warranty cost is immaterial
c. Finds the expense account being charged 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.

2. Which of the following best describes the accrual approach of accounting for
warranty cost?

a. Expensed when paid

b. Expensed when warranty claims are certain
c. Expensed based on estimate in year sale
d.Expensed when incurred

3. Which of the following best describes the expense as incurred approach of

accounting for warranty cost?

a. Expensed based on estimate in year or sale

b. Expensed when liability is accrued
c. Expensed when warranty claims are certain
d. Expensed when incurred

4. An entity has a continuing policy of guaranteeing now products against defects for
three years. What is the classification of the estimated warranty liability?

a. Noncurrrent
b. Current
c. Partly current and partly noncurrent
d. No need for disclosure

5. Which of the following is a characteristic of the accrual of warranty but not the sale
of warranty?

a. Warranty liability
b. Warranty expense
c. Unearned warranty revenue
d. Warranty revenue