Q1. For Year 1, Pac Co. has a standard assurance-type warranty on its equipment. It estimated its 2-year equipment warranty costs based on $100 per unit sold in Year 1. Experience during Year 2 indicated that the estimate should have been based on $110 per unit. The effect of this $10 difference from the estimate is reported: In Year 2 income from continuing operations. As a cumulative amount, net of tax, below Year 2 income from continuing operations. As an accounting change retrospectively applied to Year 1 financial statements. As a correction of an error requiring Year 1 financial statements to be re

FINANCIAL ACCOUNTING
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Chapter1: Financial Statements And Business Decisions
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Q1. For Year 1, Pac Co. has a standard assurance-type warranty on its equipment. It estimated its 2-year equipment warranty costs based on $100 per unit sold in Year 1. Experience during Year 2 indicated that the estimate should have been based on $110 per unit. The effect of this $10 difference from the estimate is reported:

  1. In Year 2 income from continuing operations.
  2. As a cumulative amount, net of tax, below Year 2 income from continuing operations.
  3. As an accounting change retrospectively applied to Year 1 financial statements.
  4. As a correction of an error requiring Year 1 financial statements to be restated.

 

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