Carnes Electronics sells consumer electronics that carry a 90-day manufacturers 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 $440,000 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.

($440000*4.5/24 months) = $82,500

440000 x (9/12) = 330000, 330000 x (4.5/24) = 61875

The two calculation above is not correct, please show the right calculation.

Prepare journal entries that summarize sales of the extended warranties and recognition of any revenue associat warranties. Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field