Indicate how each event affects the elements of the financial statements. Use the following letters to record your answer in the box shown below each element. You do not need to enter amounts. Increase = IDecrease = DNo Effect = NA(Note that "No Effect" means that the event either does not affect the element of the financial statements or that the event causes an increase in that element and is offset by a decrease in that same element.) Kelly Co. sells goods to customers with a three-year warranty. On December 31, Year 1, Kelly made the appropriate year-end adjustment to record the warranty expense related to the goods sold during the year. AssetsLiabilitiesStk. EquityRevenuesExpensesNetStmt. of ?IncomeCash Flows???????
What will be an ideal response?
(NA) (I) (D) (NA) (I) (D) (NA)
The adjustment made at the end of Year 1 to estimate future warranty costs related to Year 1 sales increases liabilities (warranties payable) and decreases stockholders' equity (retained earnings). It increases expenses (warranty expense), which decreases net income. It does not affect the statement of cash flows.
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