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A company switched from the cash basis to the accrual basis for recognizing warranty expense. The unrecorded liability for warranties was $1.6 million at the beginning of the year. Its tax rate is 35%. The company booked a year-end warranty liability of $3 million. As a result of this change, the firm would:

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  1. Today, 06:35
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    Report a prior period adjustment decreasing retained earnings by $1,040,000

    Explanation:

    Report a prior period adjustment decreasing retained earnings by $1,040,000

    Dr Retained earnings $1,040,000

    Dr Deferred tax liability $560,000

    (35%*$1,600,000)

    Cr Estimated warranty liability $1,600,000

    Therefore As a result of this change, the firm would Report a prior period adjustment decreasing retained earnings by $1,040,000
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A company switched from the cash basis to the accrual basis for recognizing warranty expense. The unrecorded liability for warranties was $1.6 million at the beginning of the year. Its tax rate is 35%.
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Home » Business » A company switched from the cash basis to the accrual basis for recognizing warranty expense. The unrecorded liability for warranties was $1.6 million at the beginning of the year. Its tax rate is 35%.
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