At the beginning of 2021, Angel Corporation began offering a 1-year warranty on its products. The warranty program was expected to cost Angel 4% of net sales.

At the beginning of 2021, Angel Corporation began offering a 1-year warranty on its products. The warranty program was expected to cost Angel 4% of net sales. Net sales made under warranty in 2021 were $180 million. Five percent of the units sold were returned in 2021 and repaired or replaced at a cost of $5.3 million. The amount of warranty expense in Angel's 2021 income statement is:

A) $5.3 million.

B) $7.2 million.

C) $9.0 million.

D) $27.0 million.

Answer: B

The account "Warranty Liability":

A) is adjusted at the end of the year.

B) is closed at the end of the year.

C) has a year-end credit balance equal to the cost of warranty repairs made during the year.

D) is credited each time a warranty repair is made.

Answer: A

While providing services to Palmer Co., Raider Group caused damages of $125,000. As of the end of the year, both parties agree that it is probable that Raider will pay Palmer the full amount of the damages within the next two months. How would Raider and Palmer report the lawsuit at the end of the year?

A) Raider reports a loss Palmer reports nothing.

B) Raider reports nothing Palmer reports nothing.

C) Raider reports nothing Palmer reports a gain.

D) Raider reports a loss Palmer reports a gain.

Answer: A