A Firm Is Required to Estimate a Liability for Repairs

question 106

Multiple Choice

A firm is required to estimate a liability for repairs for products sold with a warranty. If the firm's accountants later find that the estimated amount for repairs has been overstated, the correct accounting procedure is to

• A) show the amount of overstatement on the income statement as a loss.
• B) do nothing for the year in question and modify the next year's estimate.
• C) make a correcting entry because the overstatement is an error.
• D) make an adjusting entry to reduce the amount of estimate.

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Definitions:

Set Point

A theory suggesting that the body regulates its weight and energy balance around a biologically predetermined point.

Weight Change

Refers to the fluctuation of a person's body weight over time, which can result from factors such as diet, exercise, and health conditions.

Set Point For Body Weight

A theory suggesting that the body regulates its weight and body fat level with internal controls, aiming to maintain a particular weight.

Natural Point Of Stability

An equilibrium state to which a system naturally tends to return after being disturbed.