Benitez Company had sales of $680,000 in Year 1. The company expects to incur warranty expenses amounting to 3% of sales. There were $18,300 of warranty obligations paid in cash during Year 1. Based on this information:

Question

Quizplus · Accepted Answer

A) Warranty expenses of 3% of sales would be $20,400 ($680,000 x 0.03), which would decrease net earnings.
B) Cash would decrease by $18,300 to pay for the warranty obligations.
C) Since $18,300 of the warranty obligations were paid in cash, the remaining amount of $2,100 ($20,400 - $18,300) would be recorded as an increase in the warranties payable account. Therefore, all answer choices are correct.

Benitez Company Had Sales of $680,000 in Year 1