Question

You just purchased a new cell phone, which comes with a manufacturer's warranty of one year. The company that manufactures the cell phone would record the warranty as a(n):

A. known liability.

B. estimated liability.

C. contingent liability.

D. accrued liability.

Answer 1

The manufacturer would record the warranty for a new cell phone as an estimated liability because it is a promise to repair or replace the product within a certain time period, and the company must estimate the associated costs based on historical and statistical data.

Step-by-step explanation:

The manufacturer would record the warranty for a new cell phone as a estimated liability. A warranty is a promise made by a seller to a buyer to fix or replace a product if there are any defects within a certain time period (the manufacturer's warranty of one year). Even though the exact amount of warranty-related expenses is uncertain, the company needs to estimate the expected cost of honoring the warranty during the warranty period. This estimated cost is based on historical data, statistical analysis, and other relevant factors. Since the company can make a reasonable estimate of the costs based on past experiences and patterns, this type of warranty obligation is considered an estimated liability rather than a known, contingent, or accrued liability.