Concerning accounting for warranties, which of the following statements is true?
A)The expense warranty accrual method is the only method accepted for federal income tax purposes.
B)The modified cash basis is the most often used method for financial reporting.
C)The sales warranty accrual method uses a percentage of completion approach to warranty revenue recognition.
D)The modified cash basis recognizes warranty expense when cash is received on the sale.

Question

Quizplus · Accepted Answer

The modified cash basis is the most often used method for financial reporting when accounting for warranties. The other options are not correct: A is false because there are other methods accepted for tax purposes; C is false because the sales warranty accrual method recognizes warranty revenue when the sale is made, not based on percentage of completion; and D is false because the modified cash basis recognizes warranty expense when it is incurred, not when cash is received.

Concerning Accounting for Warranties, Which of the Following Statements Is