For year 1, Pac Co. estimated its two-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

As an accounting change requiring year 1 financial statements to be restated.

As a correction of an error requiring year 1 financial statements to be restated.

In year 2 income from continuing operations.

As an accounting change, net of tax, below year 2 income from continuing operations.