Big Sky Outdoor Retailer sells tents for $900 each and provides a 3-year warranty for each tent. Big Sky also offers a 2-year extended warranty for an additional $100. During 2019, Big Sky sold 2,150 tents and 1,000 extended warranties. Past experience suggests Big Sky will incur warranty costs of $20 for parts and $10 for labor during the extended warranty period.  Which of the following correctly describes how Big Sky should account for the revenue and expenses associated with the extended (service) warranties?

 

Big Sky should recognize the revenue and expense the expected costs of the warranty in 2019.

Big Sky should wait until the extended warranty period to recognize the revenue and expense the costs of the warranty.

Big Sky should expense the expected costs in 2019 but wait until the extended warranty period to recognize the revenue.

Big Sky should recognize the revenue in 2019 but wait until the extended warranty period to expense costs of the warranty.

Answer rating: 100% (QA)

Answer Option D IS CORRECT Big Sky should recognize the revenue in 20... View the full answer