Intermediate Accounting 14th Edition

Published by Wiley
ISBN 10: 0470587237
ISBN 13: 978-0-47058-723-2

Chapter 2 - Conceptual Framework for Financial Reporting - Questions - Page 69: 30a

Answer

The policy should be implemented to the degree that warranty expenses can be evaluated precisely; they should be matched against the related sales income.

Work Step by Step

The two-year warranty decision entered as an expense in the next period is only acceptable if reasonably accurate estimation is possible. If estimation is erroneous, then the decision should not be implemented because this will carry forward the error to the next period.
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