Benitez Company had sales of $800,000 in Year 1. The company expects to incur warranty expenses amounting to 3% of sales. There were $13,000 of warranty obligations paid in cash during Year 1. Based on this information:

Question

Quizplus · Accepted Answer

The warranty expense for Year 1 is calculated as 3% of $800,000, which equals $24,000. This amount would decrease net earnings. The cash decrease of $13,000 is due to the payment of warranty obligations. The warranties payable account would increase by the difference between the warranty expense and the cash paid, which is $24,000 - $13,000 = $11,000. Therefore, all statements are correct.

Benitez Company Had Sales of $800,000 in Year 1