In 2021, a company estimates that warranty costs in the following year will be $25,000. Actual warranty costs in 2022 are only $20,000. What is the effect on the accounting equation when recording actual warranty costs in 2022?

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In 2021, a company estimates that warranty costs in the following year will be $25,000. Actual warranty costs in 2022 are only $20,000. What is the effect on the accounting equation when recording actual warranty costs in 2022?

A) Stockholders’ equity decreases.

B) Stockholders’ equity increases.

C) Liabilities increase.

D) Liabilities decrease.

Answer: D

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