A company provides a one-year warranty for its products. The estimated cost of parts and labor required to satisfy warranty claims should be recorded as a current liability in the period the products are sold.

Question

Quizplus · Accepted Answer

The estimated cost of parts and labor required to satisfy warranty claims should be recorded as a current liability in the period the products are sold, as it represents a potential expense to the company in the future. This is consistent with the matching principle, which requires expenses to be recognized in the same period as the related revenue is recognized.

A Company Provides a One-Year Warranty for Its Products