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Disclosure of a contingent liability

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Disclosure of a contingent liability 1. Warranty expenses are reported on the income statement as a. administrative expenses. b. part of cost of goods sold. c. contra-revenues. d. selling expenses. 2. Marin Company sells 4,000 units of its product in 2011 for $500 each. The selling price includes a one-year warranty on parts. It is expected that 3% of the units will be defective and that repair costs will average $50 per unit. In the year of sale, warranty contracts are honored on 80 units for a total cost of $4,000. What amount should Marin Company report as Warranty Expense in its 2011 income statement? a. $6,000. b. $4,000. c. $2,000. d. $30,000. 3. Marin Company sells 4,000 units of its product in 2011 for $500 each. The selling price includes a one-year warranty on parts. It is expected that 3% of the units will be defective and that repair costs will average $50 per unit. In the year of sale, warranty contracts are honored on 80 units for a total cost of $4,000. What amount will be reported on Marin Company’s statement of financial position as Estimated Warranty Liability on December 31, 2011? a. $4,000. b. $6,000. c. $2,000. d. Cannot be determined. 4. Which of the following items would not be identified if a contingent liability were disclosed in a financial statement note? a. The nature of the item b. The expected outcome of the future event c. A numerical probability of the expected loss d. The amount of the contingency, if known 5. Disclosure of a contingent liability is usually made a. parenthetically, in the body of the statement of financial position. b. parenthetically, in the body of the income statement. c. in a note to the financial statements. d. in the management discussion section of the financial statements. Economics Assignment Help, Economics Homework help, Economics Study Help, Economics Course Help

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