Question Details

An electronics store is running a promotion where for every video game 



	S1.	Use of the accrual method in accounting for product warranty costs
a.	is required for federal income tax purposes.
b.	is frequently justified on the basis of expediency when warranty costs are 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 method of accounting for warranty costs?
a.	Expensed when paid.
b.	Expensed when warranty claims are certain.
c.	Expensed based on estimate in year of sale.
d.	Expensed when incurred.
3.	Which of the following best describes the cash-basis method of accounting for warranty costs?
a.	Expensed based on estimate in year of sale.
b.	Expensed when liability is accrued.
c.	Expensed when warranty claims are certain.
d.	Expensed when incurred.
	4.	Which of the following is a characteristic of the expense warranty approach, but not the sales warranty approach?
a.	Estimated liability under warranties.
b.	Warranty expense.
c.	Unearned warranty revenue.
d.	Warranty revenue.

	5.	An electronics store is running a promotion where for every video game purchased, the customer receives a coupon upon checkout to purchase a second game at a 50% discount. The coupons expire in one year. The store normally recognized a gross profit margin of 40% of the selling price on video games. How would the store account for a purchase using the discount coupon?
a.	The reduction in sales price attributed to the coupon is recognized as premium expense.
b.	The difference between the cost of the video game and the cash received is recognized as premium expense.
c.	Premium expense is not recognized.
d.	The difference between the cost of the video game and the selling price prior to the coupon is recognized as premium expense.




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