Drew is the accounting and finance manager for a manufacturer. At year-end, he must determine how to account for the company's contingencies. His manager, Mary, objects to Drew's proposal to recognize an expense and a liability for warranty service on units of a new product introduced in the fourth quarter. Mary comments, "There is no way we can estimate this warranty cost. We don't owe anyone anything until a product fails and is returned. Let's report an expense if and when we do any warranty work."

Prepare a memorandum for Drew to send to Mary defending his proposal.