In Western Reviewed Their Estimated Warranty Costs Which at That

In Western reviewed their estimated warranty costs which at that time was 5% of sales. This estimated was based upon the warranty accrual method. In 2014 net sales were $3,250,000 they recorded warranty expense of $162,500. Due to some pending changes in product improvement and certain economic factors the company saw a drastic drop in their warranty claims for 2015. The company decided for 2015 to reduce the estimate to 3% of sales. In 2015 Western reported net sales of $3,500,000.
Required:
1) How should the company report the change and why?
2) Prepare any necessary journal entries for 2014 or 2015 to account for the change.

Correct Answer:

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1) The company should report the change ...

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