单选题
Galaxy Corporation manufactures custom motorcycles. Galaxy finances the motorcycles over 36 months for customers who make a minimum down payment of 10 percent. Historically, Galaxy has experienced bad debt losses equal to 1 percent of sales. Galaxy also provides a 24 month unlimited warranty on all new motorcycles. In the past, warranty expense has averaged 3 percent of sales. Ignoring taxes, how does the recognition of bad debt expense and warranty expense at the time of sale affect Galaxy's liabilities? Bad debt expense Warranty expense ①A. No effect No effect ②B. Increase Increase ③C. No effect Increase
【正确答案】
C
【答案解析】The recognition of bad debt expense has no effect on liabilities, current revenues are reduced by the expected amount of uneollectable accounts. Bad debt expense reduces net income and reduces assets. The recognition of expected warranty expense decreases net income (following the matching principle), and since it is not currently paid (doesn' t reduce assets) it creates or increases a liability at the time of sale.