Carnes Electronics sells consumer electronics that carry a $90-$day manufacturer$$s warranty. At the time of purchase, customers are offered the opportunity to also buy a two$-$year extended warranty for an additional charge. During the year, Carnes received $$442,000$ for these extended warranties, and on average the warranties were $20\%$ expired by year end.

Required:

$1-$a$.$ Does this situation represent a loss contingency?

$1-$b$.$ How should it be accounted for?

$2.$ Prepare journal entries that summarize sales of the extended warranties and recognition of any revenue associated with those warranties.