2. Beginning on January 1, 20X0, Lisbon Corporation began offering a three year
ID: 2339201 • Letter: 2
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2. Beginning on January 1, 20X0, Lisbon Corporation began offering a three year warranty from the date of sale on any of its products sold from that date on. The warranty offer was expected to cost Lisbon 4% of its sales. Sales made under warranty in 20X0 amounted to $ 10,000,000 and 1 5% ofthe units sold were returned. The cost to repair or replace the units cost Lisbon $72,000. What amount of warranty expense should Lisbon report on its 20X0 income statement? (a) $133,333. (b) $400,000. (c) S 72,000. (d) S328,000. 3. SFAS No. 43, Accounting for Compensated Absences, establishes the requirements for employers to accrue a liability for employees' compensation for future absences. The item that would require accrual under the provisions of this statement is: (a) Severance pay (b) Postretirement benefits. (c) Vacation pay based on past service. (d) Long term disability pay.Explanation / Answer
2 Lisbon Corporation should make an expense provision in income statement of 10,000,000*4%= 4,00,000. Expense provision should be made at the time of making the sales by debiting the warranty expense and creditiing the warranty liability and when the actual warranty claim is received warranty liability should be should be debited.
3 The item that would require accrual ot this statement is vacation pay based on past service
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