A company introduced a new product this year that carries a two-year warranty against manufacturers defects. Based on their experience with previous product introductions, warranty costs are expected to approximate 3% of sales. Sales and actual warranty expenditures for the first year of selling the product were:

Sales	Actual Warranty Expenditures
$ 5,560,000	$ 59,250

Required:

A. Does this situation represent a loss contingency?

B. Prepare journal entries that summarize sales of the product (assume all credit sales) and any aspects of the warranty that should be recorded during the year.

C. What amount should the company report as a liability at December 31 of this year?