Pepe Abad, a car salesman in Cayey, offers a two-year guarantee when they buy a car. This guarantee consists of repairing the car's engine if it is damaged. Pipo, who is the accounting manager, determines that for the closing period of the accounting books, an expense and a debt (obligation) must be recognized for the guarantee service offered by Pepe ABAD. Papo, who is Pipo's boss, opposes the recognition of the expense and the debt and argues that there is no debt (obligation) with anyone until the clients come to repair the engine. That is when the expense is recognized. Answer in your own words.

Answer the following questions:

• Who is right Papo or Pipo and why?
• Regardless of who is right, what would the input be?
• Mention the principle or assumption of accounting applies. What establishes that principle and why does it apply in this case?

Answer rating: 100% (QA)

Pipo is right under this case because the obligation is exsisted to some extent and its contingent l... View the full answer