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

Instructions Answer 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 subsequent periods?

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(dollars in thousands) Current Year Prior Year Current liabilities Current portion of long-term debt $ 15,000 $ 10,000 Short-term debt 2,668 405 Accounts payable 29,495 42,427 Accrued warranty 16,843 16,741 Accrued marketing programs 17,512 16,585 Other accrued liabilities 35,653 33,290 Accrued and deferred income taxes 16,206 17,348 Total current liabilities $133,377 $136,796 Notes to Consolidated Financial Statements 1 (in part): Summary of Significant Accounting Policies and Related Data Accrued Warranty-The company provides an accrual for future warranty costs based upon the relationship of prior years' sales to actual warranty costs.