Concept introduction:
Warranty Expense:
A company may issue warranty with the sale of its product which bounds the company to replace or repair in case of quality failure according to the terms of the warranty. The provision for the estimated warranty liability is made at the time of sale of the products and warranty expense is recorded. This provision is utilized at the time of performing the warranty contract.
Current Ratio is measure of the company’s ability to pay off its current liabilities using its current assets. It is calculated by dividing the total current assets by total current liabilities. The formula of the current ratio is as follows:
To indicate:
The decision for Jim.
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Cornerstones of Financial Accounting
- Please answer the following questions what are two types of credit what is a security interest who is the debtor and creditor what happens if the debtor defaults what type of transaction requires a financing statementarrow_forwardTRUE OR FALSE? The effect of a lender agreeing to give the borrowing entity a grace period after the reporting period will make a liability current.arrow_forwardTRUE OR FALSE?The effect of a lender agreeing to give the borrowing entity a grace period after the reporting period will make a liability current.arrow_forward
- what are two types of credit what is a security interest who is the debtor and creditor what happens if the debtor defaults what type of transaction requires a financing statementarrow_forwardTRUE OR FALSE? 1. Current assets less current liabilities equals net assets.2. The effect of a lender agreeing to give the borrowing entity a grace period after the reporting period will make a liability current.3. The effect of a lender agreeing to give the borrowing entity a grace period within the reporting period will make a liability noncurrent.arrow_forwardWhich of the following does not relate to credit risks? a. Credit risk is the possibility of losing a lender takes on due to the possibility of a borrower not paying back a loan b. It refers to the risk that a lender may not receive the owed principal and interest c. Credit risk also describes the risk that an insurance company will be able to pay a claim. d. Credit risk is the possibility of a loss resulting from a borrower's failure to repay a loan or meet contractual obligations e. Credit risk describes the risk that a bond issuer may fail to make payment when requestedarrow_forward
- Canceling the original loan and signing a new loan agreement with different terms to settle troubled debts is called what? a) Prolongation b )Settlement c) Nullification d) Continuation with modification of debt termsarrow_forwardCollateral security is used by the lender when * interest is not paid on time the loan is not repaid and prime security is insufficient to cover the dues the loan term is over the interest rates in the market changearrow_forwardThe definitions of default events are fairly standard, but what really constitutes a default? a. The second missed payment O b. Default only happens when you cannot pay the interest on the outstanding debt c. The first missed payment O d. Depends on what kind of grace period is granted and the agreement with the borrowerarrow_forward
- A loan refers to a contract where a borrower receives a sum from a lender on the promise of repayment along with interest at a future date. It is the most common instrument of debt financing and a major source of income for the banking industry. Don't take that answer.Don't take that answer.arrow_forwardWhat does default mean? Does it occur only when borrowers fail to make scheduled loan payments?arrow_forwardWhich one of the following is NOT the standard covenants in loan contracts? a. Audit fee b. Actions in case of default c. Government charges d. Fees and interest ratesarrow_forward
- Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning