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21) Booker Company reported sales revenue for 2013 of $800,000.  The products were sold with a six-month warranty.  Members of Booker's management estimate the cost of the warranty will be equal to 3% of sales revenue.  Which of the following is included in the entry to record the actual amounts paid out as a result of warranty claims?

A) A debit to Estimated warranty payable for the actual amount of payments

B) A credit to Estimated warranty payable for $24,000

C) A debit to Estimated warranty payable for $24,000

D) A debit to Warranty expense for the actual amount of payments

22) Which of the following is included in the entry to record warranty expense?

A) A debit to Warranty expense

B) A credit to Inventory

C) A credit to Warranty expense

D) A debit to Estimated warranty payable

23) Which of the following is included in the entry to record estimated warranty payable?

A) A credit to Estimated warranty payable

B) A credit to Inventory

C) A credit to Warranty expense

D) A debit to Estimated warranty payable

24) In which of the following periods should the estimated warranty liability be debited?

A) The period when cash is paid to repair or replace the product

B) The period when the product is sold

C) The period when cash is collected for the sale of the product

D) The period when the product is shipped to the customer

25) Which of the following is NOT an exact liability?

A) FICA tax payable

B) Income tax payable

C) Warranty payable

D) Accounts payable

26) Which of the following is the proper treatment for a liability that exists, but the exact amount of which is not known?

A) The liability should be treated as a contingent liability.

B) The amount of the liability should be estimated and recorded.

C) The liability should be ignored.

D) The liability should be reported in the notes to the financial statements.

27) A pending lawsuit which might result in a liability is considered a(n):

A) contingent liability.

B) current liability.

C) legal liability.

D) unearned revenue.

28) Franconia Sales offers warranties on all their electronic goods.  Warranty expense is estimated at 2% of sales revenue.  In 2013, Franconia had $500,000 of sales.  In the same year, Franconia paid out $7,500 of warranty payments.  Which of the following is the entry needed to record the estimated warranty expense?

A)

Estimated warranty payable

7,500

     Cash

7,500

B)

Warranty expense

7,500

     Estimated warranty payable

7,500

C)

Warranty expense

10,000

     Estimated warranty payable

10,000

D)

Warranty expense

10,000

     Sales revenue

10,000

29) Franconia Sales offers warranties on all their electronic goods.  Warranty expense is estimated at 2% of sales revenue.  In 2013, Franconia had $500,000 of sales.  In the same year, Franconia paid out $7,500 of warranty payments.  Which of the following is the entry needed to record the disbursement of warranty payments?

A)

Estimated warranty payable

7,500

     Cash

7,500

B)

Warranty expense

7,500

     Estimated warranty payable

7,500

C)

Warranty expense

10,000

     Estimated warranty payable

10,000

D)

Warranty expense

10,000

     Sales revenue

10,000

30) Arc Digital starts the year with balances in its Estimated warranty payable account and Warranty expense account as shown below.  During the year, there were $190,000 of sales and $3,200 of warranty repair payments.  Arc Digital estimates warranty expense at 1.5% of sales.

At the end of the year, what was the balance in the Warranty expense account?

A) $2,850  debit

B) $1,250  credit

C) $3,200  debit

D) $1,420  debit

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