Novak Industries has recently reported steadily increasing income. The company reported income of in in and in A number of market analysts have recommended that investors buy Novak shares because the analysts expect the steady growth in income to continue. Novak is approaching the end of its fiscal year in and it again appears to be a good year. However, it has not yet recorded warranty expense.
Based on prior experience, the warranty expense should be around but some managers have approached the controller to suggest a larger, more conservative warranty expense should be recorded this year. Income before warranty expense is
Specifically, by recording a warranty accrual this year, Novak could report an increase in income for this year and still be in a position to cover its warranty costs in future years.
c Assume income before warranty expense is for both and and that total warranty expense over the year period is What is the appropriate accounting in this situation?
