1.Glen Arbor Corporation sells DVD players. The corporation also offers its customers a 4-year service-type warranty contract. On 1/1/17, Glen Arbor sold 20,000 warranty contracts at $99 each and spent $180,000 servicing warranties during 2017 and $200,000 servicing warranties in 2018. Estimated warranty expense for the four-year period is $800,000. The Sales Warranty (Deferred Revenue) approach is applicable. Assume straight-line amortization.

What is the net effect on 2018 Net Income?

Select one:

a. $315,000

b. $990,000

c. $200,000

d. $295,000

e. $1,780,000

2.

On 1/1/17, Traverse Company sold 100 components at $700 each. All sales were cash sales. Estimated total cost servicing the components was $1,100 each year of the five-year-warranty. Traverse spent $1,500 servicing the components in 2017 and $500 servicing components in 2018. This is considered an "assurance-type" warranty; Traverse uses the Expense Warranty approach. What is 2017 Warranty Expense?

Select one:

a. $0

b. $4,000

c. $1,400

d. $5,500

e. $3,900