Newton Company introduced a line of laptop computers in 2016 that carry a 1-year assurance-type warranty. Based on experience with other computers that it sells, Newton estimated warranty costs as 3% of net sales. Net sales of the laptop in 2016 were $5,000,0000, and Newton recorded warranty expense of $150,000. In 2017, based on the previous years’ warranty costs, Newton revises its estimate of warranty costs to 1% of net sales. In 2017, Newton reported $8,000,000 in net sales of the laptop.
Required:
1. Prepare any entry needed in 2017 to account for this change.
2. Discuss the advantages and disadvantages of accounting for a change in this manner.