Explaining Revenue Recognition and Bundled Sales A.J. Smith Electronics is a retail consumer electronics company that also sells extended warranty contracts for many of the products that it carries. The extended warranty provides coverage for three years beyond expiration of the manufacturer's warranty. In 2019, A.J. Smith sold extended warranties amounting to $1,700,000. The warranty coverage for all of these begins in 2020 and runs through 2022. The total expected cost of providing warranty services on these contracts is $500,000. a. How should A.J. Smith recognize revenue on the extended warranty contracts? Select the most appropriate answer below. A.J. Smith should recognize the extended warranty revenue in the year of sale of the electronics. A.J. Smith should recognize the extended warranty revenue when the manufacturer's warranty expires. A.J. Smith should recognize the extended warranty revenue proportionately during the three years of coverage. A.J. Smith should recognize the extended warranty revenue in the final year of the extended warranty. b. Estimate the revenue, expense, and gross profit reported from these contracts in the year(s) that the revenue is recognized. Round answers to the nearest whole numbers. Year 2020 2021 2022 Revenue Warranty expenses Gross profit $ 566,666,66 x $ 566,666,66 * $ 166,666,667 x 16,666,667 x $ 400,000 $ 400,000 $ Total 1,700,000 500,000 1,200,000 566,666,66 x $ 1,666,667 x 400,000 $ c. In 2020, as a special promotion, A.J. Smith sold a digital camera (retail price $300), a digital photograph printer (retail price $125), and an extended warranty contract for each (total retail price $75) as a package for a special price of $399. The extended warranty covers the period from 2021 through 2023. The company sold 200 of these camera-printer packages. Compute the revenue that A.J. Smith should recognize in each year from 2020 through 2023. Revenue 2020 $ OX 2021 0x 2022 0 x 2023 $ 0x