Microsoft extended the warranty on its x-box 360 video game console and said it will take a charge of more than $1 billion to pay for "anticipated costs." Under the new warranty, Microsoft willl pay for shipping and repairs for three years, worldwide, for consoles afflicted with what gamers call "the red ring of death." Previously, the warranty expired after a year for U.S. customers and two years for Europeans. The charge will be $1.05 billion to $1.15 billion for the quarter ended June 30. Microsoft reports its fourth-quarter results by July 19.
The Question is as follows: When the announcement was made, it was stated that either a high number of x-box 360's will fail or the company is being overly conservative in its warranty estimate. From an accounting standpoint, what will Microsoft do in the future if the estimate of future repairs is overly conservative (too high)?