A manufacturer of sports vehicles completed and sold 100 motor vehicles during the current year. During testing, it was discovered that there was a serious defect on the gear box of the cars. The 100 clients were asked to bring the cars so that the defect could be attended to, at no charge. The cost of the repairs is estimated at $500 000. The manufacturer of the gear box undertook to reimburse the manufacturer of all costs incurred in this exercise. Required Explain the accounting treatment of these events.