A Company Switched from the Cash Basis to the Accrual

question 11

Multiple Choice

A company switched from the cash basis to the accrual basis for recognizing warranty expense. The unrecorded liability for warranties was $2 million at the beginning of the year. Its tax rate is 30%. The company booked a year-end warranty liability of $3 million. As a result of this change, the firm would:

• A) Report a prior period adjustment decreasing retained earnings by $600,000.
• B) Report a prior period adjustment decreasing retained earnings by $1,400,000.
• C) Report a current period charge decreasing net income by $600,000.
• D) Report a current period charge decreasing net income by $1,400,000.

Recognize the historical context and significance of Charles Darwin's work on the theory of evolution.

Appreciate the dynamic and bidirectional relationship between biology and environment as proposed by social cognitive theory.

Acquire knowledge on the mechanisms of heredity and the basic components of genetics, including DNA and the Human Genome Project.

Understand the importance of genetic expression and how environmental factors can influence gene expression.

---

Definitions:

Uncollectible Accounts

Accounts receivable that a company does not expect to collect due to customer defaults.

Bad Debt Expense

The estimated amount of credit sales that are not expected to be collected, representing potential loss to the company.

Allowance Method

An accounting technique used to account for bad debts, where estimated uncollectible accounts are expensed, adjusting the accounts receivable balance.

Accounts Receivable

Outstanding payments due to a company from its customers for delivered or utilized goods and services.