04 Jun EXPLAIN THE RELEVANT ACCOUNTING PRINCIPLE AS IT APPLIES TO MEASURING WARRANTY EXPENSE.
- 36) January 1, 2014 Spacepower, Inc. purchased $140,000 face value of the 4% bonds of Service Express, Inc., at 108. The bonds mature on January 1, 2019. For the year ended December 31, 2017, Spacepower received cash interest of A) $3,360 B) $6,048 C) 7,840 D) $5,600.
- 37) #37)Barnstormers USA guarantees tires against defects for five years or 60,000 miles, whichever comes first. Suppose Barnstomers USA can expect warranty costs during the five-year period to add up to 6% of sales. Assume that a Barnstomers USA dealer in Atlanta, Georgia made sales of $481,000 during 2014. Barnstomers USA received cash for 30% of sales and took notes receivable for the remainder. Payments to satisfy customer warranty claims totaled $19, 100 during 2014. Answer the following questions A) What amount of warranty expense will Barnstomers USA report during 2014? B) Which accounting principle addresses this stuation? C) Does the warranty expense for the year equal the year’s cash payment for warranties? D) Explain the relevant accounting principle as it applies to measuring warranty expenses? ___________________________________________________________________________ A) What amount of warranty expense will Barnstormers USA report during 2014? Barnstomers will report warranty expense of $ __________ during 2014. B) Which accounting principle addresses this situation? The accounting principle that addresses this situation is the ______________ a) Cost principle, b) expense recognition(matching principle) c) objectivity characteristic d) revenue-recognition principle. C) Does the warranty expense for the year equal the year’s cash payments for warranties? The warranty expense for the year_____________ (does not equal, equal) the year’s cash payments for warranties. D) Explain the relevant accounting principle as it applies to measuring warranty expense. Cash payments for warranties _________________ (do determine, or do not determine) the amount of warranty expense for that year. The warranty expense is ___________________________ . a) Based on actual cash payment b) Estimated and matched against cash sales c) Estimated and match against credit sales d) Estimated and match against total stales
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