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:

Human Resource Management

The strategic approach to the effective and efficient management of people in an organization to help it gain a competitive advantage.

Above-Market Wages

Compensation levels that exceed the average pay rate within a specific industry, sector, or geographical area.

Job Security

The assurance or probability that an individual will keep their job without the risk of becoming unemployed.

Union Substitution

Strategies or practices implemented by an organization intending to make the formation of a labor union unnecessary by addressing worker needs directly.