Gore Inc. recorded a liability in 2013 for probable litigation losses of $2 million. Ultimately, $5 million in legitimate warranty claims were filed by Gore's customers.
A)Gore has made a change in accounting principle, requiring retrospective adjustment.
B)Gore needs to correct an accounting error.
C)Gore is required to adjust a change in accounting estimate prospectively.
D)Gore is not required to make any accounting adjustments.

Question

Quizplus · Accepted Answer

The original liability for probable litigation losses was based on an estimate, and the actual amount of warranty claims ended up being higher than expected. This requires an adjustment in accounting estimate, which should be applied prospectively, meaning no adjustment is needed for the original liability recorded in 2013. Therefore, choice C is correct.

Gore Inc Recorded a Liability in 2013 for Probable Litigation Losses