During Year 1, its first year of operations, Benitez Company reported sales of $800,000. At the end of Year 1, the company estimated its warranty obligation at 3% of sales. During Year 1, the company paid $13,000 cash to settle warranty claims. Which of the following statements is true?
A)Warranty expenses would decrease net earnings by $24,000 in Year 1.
B)Cash decreased by $13,000 as a result of the accounting events associated with warranties in Year 1.
C)The warranties payable account has a balance of $11,000 at the end of Year 1.
D)All of these answer choices are correct.

Question

Quizplus · Accepted Answer

The warranty expense is 3% of $800,000, which is $24,000, decreasing net earnings. Cash decreased by $13,000 due to warranty claims paid. The warranties payable account balance is $24,000 (expense) - $13,000 (paid) = $11,000.

During Year 1, Its First Year of Operations, Benitez Company