Question

Estimating warranty expenses at 2%, when past history suggests they have experienced 5%, results in an overstatement of expenses and an understatement of liabilities.A. True

B. False

Answer 1

False

Step-by-step explanation:

Warranty accruals will be accounted for when incurred through the following entries,

Debit Warranty expense

Credit Warranty accrual

Using the history as a basis for accrual estimating the warranty expenses at 2% instead of 5% would result in an understatement of the two accounts stated above.

These are the expense and accrual accounts. As such the answer is false

Answer 2

Answer: option B: False

Step-by-step explanation:

Liabilities and Expenses will both be understated