A Company Is Required to Estimate a Liability for Repairs

A company is required to estimate a liability for repairs for products sold with a warranty. In the year following the sale, the firm's accountants find that the estimated amount for repairs has been overstated. The correct accounting procedure in the year following the sale is to

A) make an adjusting entry to reduce the amount of the estimate.
B) make a correcting entry because the overstatement is an error.
C) show the amount of overstatement on the income statement as a loss.
D) do nothing because the misstatement related to the prior year.

Correct Answer:

Verified

Unlock this answer now
Get Access to more Verified Answers free of charge

Access For Free