Under the warranty revenue approach, there should be no income statement effects for warranty repairs performed after the year of sale (assuming that accrued warranty expenses and expenditures equal one another).

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Under the warranty revenue approach, warranty costs are estimated and recognized as an expense in the income statement in the year of sale, creating a warranty liability. When actual warranty repairs occur in subsequent years, they reduce the liability without affecting the income statement, assuming the initial estimate was accurate. However, if actual costs differ from the estimate, adjustments would affect the income statement.

Under the Warranty Revenue Approach, There Should Be No Income