1.Tesla uses lease accounting for automotive sales under its resale value guarantee program. Assume that instead of using lease accounting for automotive sales under its resale value guarantee program, Tesla instead recognized these sales and the associated cost of sales at the inception of the sale. Estimate the Income (Loss) from operations that Tesla would have reported for 2014.

2.Summarize the accounting policy that Tesla uses for warranties.

3.Assume that instead of using its current accounting policy for warranties, Tesla instead expensed all warranty costs as costs were incurred. Estimate the Income (Loss) from operations that Tesla would have reported for 2014.

4..Which of the above two accounting methods for warranties do you think best reflects the underlying economics of the warranty obligations? Briefly explain your answer