North Boulder USA, a tiremanufacturer, guarantees its tires against defects for five years or60,000 miles, whichever comes first. Suppose North Boulder USA can expect warranty costs during thefive-year period to add up to 3% of sales. Assume that a North Boulder USA dealer inDenver, Colorado, made sales of $641,000 during 2018. North Boulder USA received cash for 15% of the sales and took notes receivable for the remainder. Payments to satisfy customer warranty claims totaled $18,500 during 2018.

a.What amount of warranty expense will North Boulder USA report during 2018?

b.Which accounting principle addresses thissituation?

c.Does the warranty expense for the year equal theyear's cash payments forwarranties?

d. Explain the relevant accounting principle as it applies to measuring warranty expense.