GladiatorGladiator USA guarantees tires against defects for five years or 60,000 miles, whichever comes first. Suppose GladiatorGladiator USA can expect warranty costs during the five-year period to add up to 4% of sales. Assume that a GladiatorGladiator USA dealer in St. Paul, Minnesota, made sales of $626,000 during 2016. GladiatorGladiator USA received cash for 30% of the sales and took notes receivable for the remainder. Payments to satisfy customer warranty claims totaled $19,600 during 2016.

a. What amount of warranty expense will GladiatorGladiator USA report during 2016?

b. Which accounting principle addresses this situation? (cost, expense recognition, objectivity characteristic, or revenue-recognition)

c. Does the warranty expense for the year equal the year's cash payments for warranties? (does not equal or equals)

d. Explain the relevant accounting principle as it applies to measuring warranty expense. Cash payments for warranties (do determine or do not determine) the amount of warranty expense for that year. The warranty expense is (based on actual cash payments or estimated and matched against cash sales or estimated and matched against credit sales or estimated and matched against total sales) during the period of the sale