A Firm Is Required to Estimate a Liability for Repairs

question 148

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)make an adjusting entry to reduce the amount of 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 for the year in question and modify the next year's estimate.