A quality-assurance warranty typically results in the seller:
A) Accruing an expense for anticipated warranty costs at the time the warrantied product is sold.
B) Recognizing an asset for accrued warranty costs which is amortized over the life of the warranty.
C) Recognizing revenue over the life of the extended warranty.
D) Refunding warranty payments upon expiration of the warranty.

Question

Quizplus · Accepted Answer

When a quality-assurance warranty is provided, the seller must accrue an expense for the anticipated warranty costs at the time the product is sold. This is because they are obligated to provide repairs or replacements if necessary during the warranty period. Therefore, they must recognize the expected costs as an expense at the time of sale.

A Quality-Assurance Warranty Typically Results in the Seller