Test: CPA Financial Accounting and Reporting (FAR)

1.

The Truman Company sells 12,500 of microwaves during Year 5. All sales are covered by a warranty through the end of Year 6. Based on past experience, the company expects 4% of microwaves sold to break during Year 6 and expects it will cost $30 to fix each microwave. However, during Year 6, 540 microwaves actually break and they each cost $28 to fix. The company is now preparing comparative financial statements for Years 5 and 6. What amount of warranty expense should be recognized?

$14,500 in Year 5 and $620 in Year 5

$15,120 in Year 5 and $0 in Year 6

$0 in Year 5 and $15,120 in Year 6

$15,000 in Year 5 and $1,120 in Year 6

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