A Company Is Required to Estimate a Liability for Repairs

question 61

Multiple Choice

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.What is the correct accounting procedure in the year following the sale?

• 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.

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