Which of the following situations require recording a liability in 2014? (More than one answer may be correct.)
A) In 2014, a company manufactures and sells stereo equipment which carries a three-year warranty.
B) In 2015, a theater group receives payments in advance from season ticket holders for productions to be performed in 2015.
C) A company is a defendant in a legal action. At the end of 2014, the company's attorney feels it is possible the company will lose, and that the amount of the loss might be material.
D) During 2014, a Beijing agricultural co-operative is concerned about the risk of loss if inclement weather destroys the crops.

Question

Quizplus · Accepted Answer

B  A liability should be recorded for the warranty obligation in 2014 as it is an obligation arising from sales made in that year. In situation B, the advance payments received in 2015 create a liability for the theater group as they owe performances to the ticket holders.

Which of the Following Situations Require Recording a Liability in 2014