Assume that a manufacturing corporation has (1) good quality control, (2) a one-year operating cycle, (3) a relatively stable pattern of annual sales, and (4) a continuing policy of guaranteeing new products against defects for three years that has resulted in material but rather stable warranty repair and replacement costs. Any liability for the warranty
A) should be reported as long-term.
B) should be reported as current.
C) should be reported as part current and part long-term.
D) need not be disclosed.

Question

Quizplus · Accepted Answer

The liability for the warranty should be reported as part current and part long-term because the warranty covers three years, meaning part of the liability will be due within the next year (current liability) and the rest will be due in the following two years (long-term liability).

Assume That a Manufacturing Corporation Has (1) Good Quality Control