When do the effects of warranty obligations affect the statement of cash flows?
A)When the sale of merchandise is made.
B)When the warranty obligation is recognized.
C)When there is a settlement of a warranty claim made by a customer.
D)None of these answer choices are correct.

Question

Quizplus · Accepted Answer

Cash is usually used to settle a warranty claim made by a customer and affects the statement of cash flows at that time.Although cash may be collected when the sale is made,that cash is not related to the warranty obligation.The accrual of the warranty obligation increases the liability Warranties Payable and increases Warranty Expense;as such,that transaction does not affect the statement of cash flows.

When Do the Effects of Warranty Obligations Affect the Statement