1. Lucas Company provides a bonus compensation plan under which key employees receive bonuses equal to 10% of Lucas's income after deducting income taxes but before deducting the bonus. If income before income tax and the bonus is $400,000 and the income tax rate is 30%, the bonuses should total

A. $28,866.

B. $36,400.

C. $40,000.

D. $27,160.

2. Which of the following journal entries would probably be made if the modified cash basis of accounting for warranties is in use for a sale made in 2016?

A.

2016 Cash		XX
	Sales			XX
	Unearned Warranty Revenue			XX

B.

2017 Estimated Liability under Warranties		XX
	Cash			XX

C.

2017 Warranty Expense		XX
	Cash			XX

D.

2016 Warranty Expense		XX
	Estimated Liability under Warranties			XX

3. In 2015, the Magtag Company sold 16,000 ovens. Magtag estimated that 14% of the machines would require repairs under the two-year assurance-type warranty at an average cost of $60. During 2015, Magtag had an actual outlay of $62,000 for repairs under warranty. Magtag uses the GAAP approach of accruing warranty expense (and the related liability) in the year of the sale. Refer to Exhibit 9-2. At what amount should the company record warranty expense for 2015?

A. $42,000

B. $116,000

C. $134,400

D. $62,000