Assume that a manufacturing corporation has (1) good quality control, (2) a one-year operating cycle, (3) a relatively stable pattern of annual sales, and (4) a continuing policy of guaranteeing new products against defects for three years that has resulted in material but rather stable warranty repair and replacement costs. Any liability for the warranty
A) should be reported as long-term.
B) should be reported as current.
C) should be reported as part current and part long-term.
D) need not be disclosed.

Question

Quizplus · Accepted Answer

The warranty repair and replacement costs are material but rather stable, which indicates that there will be ongoing costs related to this warranty in the future. Therefore, a portion of the liability for the warranty should be reported as long-term, while the other portion should be reported as current.

Assume That a Manufacturing Corporation Has (1) Good Quality Control