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

According to the information given, the company's experience is that warranty expense averages 2% of sales. As $12,000 worth of bicycles were sold with an extended warranty, the company should recognize the warranty expense and liability in the year of the sale. Therefore, option C is the best choice. Option A is incorrect as 2% is not a remote liability. Option B is not feasible as warranty work may be performed after the sale. Option D is incorrect as the warranty expense is not a contingent liability but a probable expense. Option E is incorrect as the warranty liability is not recognized when the company purchases the bicycles but when the sale is made with warranty.