Part 1: Warranty Expense Estimate

Greg Johnson, after completing the adjusting for his new company, Poly-Fix, was called to meet with the company controller to discuss his proposed entries. Greg, assumed that the controller was questioning his efforts as he was asked to bring his notes, calculations, and supporting documentation. Greg soon learned that his assumption was incorrect and that his boss wanted him to reconsider one of the adjusting entries for an estimated expense.

Poly-Fix is a new company, specializing in commercial fasteners. Their products have a long-term warranty against manufacturing defects. Greg's boss feels that 3% of sales is too high for their warranty expense estimate. This is a new product that has yet to be tested, and the company president is under pressure from their lenders to meet projected income and profit levels.

Address the following:

Who might be impacted by a decision to revise the estimate? How might they be impacted?

Explain the impact of revising a warranty expense estimate