For 2015, Pac Co. estimated its two-year equipment warranty costs based on $100 per unit sold in 2015. Experience during 2016 indicated that the estimate should have been based on $110 per unit. The effect of this $10 difference from the estimate is reported a. in 2016 income from continuing operations. b. as an accounting change, net of tax, below 2016 income from continuing operations. c. as an accounting change requiring 2015 financial statements to be restated. d. as a correction of an error requiring 2015 financial statements to be restated.

Question

For 2015, Pac Co. estimated its two-year equipment warranty costs based on $100 per unit sold in 2015. Experience during 2016 indicated that the estimate should have been based on $110 per unit. The effect of this $10 difference from the estimate is reported a. in 2016 income from continuing operations. b. as an accounting change, net of tax, below 2016 income from continuing operations. c. as an accounting change requiring 2015 financial statements to be restated. d. as a correction of an error requiring 2015 financial statements to be restated.

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