Presented below is the current liabilities section and related note of Mohican Company.

InstructionsAnswer the following questions.(a) What is the difference between the cash basis and the accrual basis of accounting for warranty costs?(b) Under what circumstance, if any, would it be appropriate for Mohican Company to recognize deferred revenue on warranty contracts?(c) If Mohican Company recognized deferred revenue on warranty contracts, how would it recognize this revenue in subsequentperiods?

Transcribed Image Text:

(dollars in thousands) Current Year Prior Year Current liabilities $ 15,000 $ 10,000 405 Current portion of long-term debt Short-term debt 2,668 29,495 16,843 17,512 35,653 Accounts payable Accrued waranty Accrued marketing programs Other accrued liabilities 42,427 16,741 16,585 33,290 Accrued and deferred income taxes 16,206 17,348 $133,377 $136,796 Total current liabilities