Changing The Warranty Estimate Affect Craig And The Bank

Changing the warranty estimate will affect the company. In addition, it will also affect Craig and the bank that is providing them with the credit line. First of all, by lowering the warranty expense, it would affect the company in the way that they will be able to renew their credit line as stated by Craig’s boss. Also, it will affect Craig because if he makes the right decision, and that helps build up the company, he would be look up highly. And lastly, it will affect the bank because by granting the credit line, they are hoping for a greater revenue from the company.
Reserving the warranty estimate can pose an ethical dilemma. I say ‘can’ because there are reasons that it may be okay to do it without any ethical dilemma. The Bible does tell us to “not use dishonest standards when

This gives us clearly advise that God wants us to do what is right and be honest. Yet, as previously stated, since it is a new company, it cannot predict liability with an individual sale, or reasonable accurate estimates because of no previous experiences. Thus, if the estimated warranty average of the other manufactures is around 4%, then it would pose an ethical dilemma if Craig and the company lowers it.
A warranty is the guarantee that a manufacture of product will repair or replace the product for a certain period of time. This is the obligation that a company has and that creates a liability at the time the product is sold. In addition, guarantees should be estimated and recorded as expenses in the same accounting period the products are sold and matching expenses with revenues (Spiceland, Sepe, Nelson & Thomas, 2018). Therefore, when the company records the warranty expense it has to be at the time the sale took place.