Question

Indicate the proper accounting treatment for a change in the rate used to compute warranty costs.

a. Accounted for prospectively
b. Accounted for retrospectively

Answer 1

a. Accounted for prospectively

Step-by-step explanation:

Warranty cost is an expense i.e. to be incurred for the repair or replacement of the goods comes under the warranty given by the company.

Here if there is a change in the rate i.e. used for determining the warranty cost so it would be accounted in prospectively manner i.e. it would be changed in the current period and also the amount should be estimated or predicted

Hence, the correct option is a.