Question

1. A warranty offered on products sold results in the seller:

a.Recording an expense for warranty costs at the time the warranty is sold.

b. Estimating the contingent liability associated with the warranty at the time the warranty is sold.

c. Both of the above

d. Neither of these.

Answer 1

Answer- D neither of these.

When warranty is offered on product sold then contingent liability is recorded because there is contingency/uncertainty of loss or expenses that warranty cost might happen so that provision for the same is made.

For example when there is uncertainty/contingency of baddebts the provision for the same is made. i.e provision for doubtful debts.

Option A is incorrect because expense is only recorded when expense incurres actually. If there is contingency of expenses provision can be made for same.

Option B is incorrect because on sale contingent liability is recorded.

Option C is incorrect because above 2 are incorrect.

Option D is correct.