A Company Is Required to Estimate a Liability for Repairs

question 89

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. The correct accounting procedure in the year following the sale is to

• 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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Definitions:

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