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. Recognize warranty liability when the company purchases the bicycles.
C. Consider the warranty expense a contingent liability.
D. Recognize warranty expense and liability in the year of the sale.
E. Recognize warranty expense at the time the warranty work is performed.
Answer: D
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