Bears Inc. sells football helmets to local schools and warrants all of its produ

Question

Bears Inc. sells football helmets to local schools and warrants all of its products for one year. While no helmets sold in 2012 have been returned to them yet, based upon previous years, Bears Inc. estimates that 3% of its products will need repairs or be replaced within the next year. What effect would this warranty have on assets, liabilities, and stockholders' equity in 2012?

A decrease in stockholders' equity and an increase in liabilities.

No journal entry is necessary until products under warranty are returned.

A decrease in assets and decrease in stockholders' equity.

An increase in stockholders' equity and a decrease in liabilities.

Explanation / Answer

b. No journal entry is necessary until products under warranty are returned.

refer http://answers.yahoo.com/question/index?qid=20111025102327AASwpMC

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