During Year 1, its first year of operations, Benitez Co. reported sales of $640,000. At the end of Year 1, the company estimated its warranty obligation at 3% of sales. During Year 1, the company paid $12,000 cash to settle warranty claims. Which of the following statements is true?

Multiple Choice

• Warranty expenses would decrease net earnings by $19,200 in Year 1.

• Cash decreased by $12,000 as a result of the accounting events associated with warranties in Year 1.

• All of these answer choices are correct.

• The warranties payable account has a balance of $7,200 at the end of Year 1.