Question

Which of the following is an example of an extended warranty?

Multiple Choice

• Erickson Electronics promises to make repairs or replace any product found to be defective within a week of purchase.

• Fancy Headphones, Inc. provides assurance that its headphones are defect-free after purchase.

• Mark Electronics offers a warranty at an affordable price that provides additional protection after the customer takes possession of the product.

• Azalea's Flowers assures clients that its flowers will stay fresh for at least a week.

Which of the following is not an indicator that the constraint on recognizing variable consideration should be applied?

Multiple Choice

• A short delay before uncertainty resolves

• A history of the seller changing payment terms on similar contracts

• Poor (limited) evidence on which to base an estimate

• A broad range of outcomes that could occur

A rationale for recognizing revenue over the life of a contract rather than at a single point in time is that:

Multiple Choice

• It provides a better measure of periodic accomplishment.

• It is a better match with legal ownership.

• It results in a lower income tax.

• Results are more conservative.

The Ultimate Frisbee League (UFL) licenses its trademark to Tank-Skin Apparel. Under the license arrangement, Tank-Skin pays the UFL a $1 million initial license fee plus a bonus when annual sales of Tank-Skin merchandise reach a threshold. The license agreement is for 4 years.

How much of the $1 million initial license fee should the UFL recognize as revenue in the first year of the contract?

Multiple Choice

• $1,000,000

• Cannot tell from information given.

• $0

• $250,000

Todd Sweeney is an artist who sells his work under consignment (he displays his work in local barbershops, and customers purchase his work there). Sweeney recently transferred a painting on consignment to a local barbershop.

After Sweeney has transferred a painting to a barbershop, the painting:

Multiple Choice

• Should be counted in the barbershop's inventory, as the barbershop now possesses it.

• We lack sufficient information to know who should carry the painting in inventory.

• Should be counted in either Sweeney's or the barbershop's inventory, depending on which incurred the cost of preparing the painting for display.

• Should be counted in Sweeney's inventory until the barbershop sells it.

Answer 1

Which of the following is an example of an extended warranty?

Ans:

(C) Mark Electronics offers a warranty at an affordable price that provides additional protection after the customer takes possession of the product.

Explanation:

1) Erika promise to repair within one week of purchase. this cannot be considered as extended warranty. hence 1st option is incorrect.

2) Fancy headphone inc. is just providing assurance and not warranty. thus this is also an incorrect choice.

3) Mark Electronics charges mimimum to provide warranty after the possession. This is considered extended warranty. Thus this is correct choice.

4) Flower is a non durable item, so question of warranty does not arise here. thus this is also incorrect choice.

Hence, ( C) is only correct option.