Question One:

Universal Semiconductors estimates warranty expense as 2% of credit sales. After a review during 2013, Universal determined that 3% of credit sales is a more realistic estimate of its payment experience. Credit sales in 2013 are $300 million. The effective income tax rate is 40%.

A.Does the Warranty expense that got reported in prior years get restated?

B.Do the account balances get adjusted?

C. In 2013 and later years, the adjusting entry to record warranty expense simply will reflect the new percentage. In 2013, the entry would be: