Refer to the data given in S8-6. What amount of warranty expense will North Boulder USA report during 2018? Which accounting principle addresses this situation? Does the warranty expense for the year equal the year’s cash payments for warranties? Explain the relevant accounting principle as it applies to measuring warranty expense.

Data from S8-6

North Boulder USA, a tire manufacturer, guarantees its tires against defects for five years or 60,000 miles, whichever comes first. Suppose North Boulder USA can expect warranty costs during the five-year period to add up to 3% of sales. Assume that a North Boulder USA dealer in Denver, Colorado, made sales of $641,000 during 2018. North Boulder USA received cash for 15% of the sales and took notes receivable for the remainder. Payments to satisfy customer warranty claims totaled $18,500 during 2018.