A company sold $12,000 worth of bicycles with an extended warranty. The company's experience is that warranty expense averages 2% of sales. The company should:
A. Consider the warranty expense a remote liability since the rate is only 2%.
B. Consider the warranty expense a contingent liability.
C. Recognize warranty liability when the company purchases the bicycles.
D. Recognize warranty expense at the time the warranty work is performed.
E. Recognize warranty expense and liability in the year of the sale.
Answer: E
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