Question

General Motor accrued 41 million warranty expense in 2014. Which of the following describes the effect of the accrual on the financial statements?

Group of answer choices

Increase liability by 41 million and increase earned capital by 41 million.

Increase expense by 41 million and no impact on the balance sheet.

Increase expense by 41 million and decrease liability by 41 million.

Increase expense by 41 million, decrease earned capital by 41 million, and increase liability by 41 million.

Answer 1

Answer:

Increase expense by 41 million, decrease earned capital by 41 million, and increase liability by 41 million

Explanation:

Entry for Accrued warranty expense;

General Journal			Effect
Account title and explanation	Debit	Credit	Assets	Liabilities	Equity
Warranty expense	$41 million				-
Warranty payable		$41 million		+
[To record warranty expense]

Therefore,

• Increase expense by 41 million, Decrease earned capital &
• Increase liability by 41 million

Thus, Option iv is correct and remaining options are incorrect.