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.

Question

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The Answer of 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.

A Firm Is Required to Estimate a Liability for Repairs