[The following information applies to the questions displayed below.]

In December Year 1, Lucas Corporation sold merchandise for $10,000 cash. Lucas estimated that the warranty obligation relating to this sale is $700. On February 12, Year 2, Lucas paid cash of $550 to settle a related warranty claim by this customer.

-Which of the following summarizes the effect of the payment of cash to settle the warranty claim in Year 2 on the elements of the financial statements?

A)Option A
B)Option B
C)Option C
D)Option D

Question

[The following information applies to the questions displayed below.]

In December Year 1, Lucas Corporation sold merchandise for $10,000 cash. Lucas estimated that the warranty obligation relating to this sale is $700. On February 12, Year 2, Lucas paid cash of $550 to settle a related warranty claim by this customer.

-Which of the following summarizes the effect of the payment of cash to settle the warranty claim in Year 2 on the elements of the financial statements?

A)Option A 
B)Option B 
C)Option C 
D)Option D

Quizplus · Accepted Answer

Paying $550 to satisfy a warranty claim decreases assets (cash)by $550 and decreases liabilities (warranties payable)by $550.The $550 outflow is reported as an operating activity on the statement of cash flows.

[The Following Information Applies to the Questions Displayed Below