A contract holds a $30,000 warranty reserve. After correction of accepted items, 80 percent of the reserve is released. What amount remains reserved?
Correct Answer
B) $6,000
The unreleased portion is 20%. $30,000 × (1 − 0.80) = $6,000 remains. $24,000 is the amount released, $12,000 is 40% of the original reserve, and $30,000 ignores the release. The reserve terms are given for this calculation, not a universal legal withholding rule.
Why This Is the Correct Answer
The unreleased portion is 20%. $30,000 × (1 − 0.80) = $6,000 remains. $24,000 is the amount released, $12,000 is 40% of the original reserve, and $30,000 ignores the release. The reserve terms are given for this calculation, not a universal legal withholding rule.
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