Fusion, Inc. introduced a new line of circuits in 2016 that carry a four-year warranty against manufacturer's defects. Based on experience with previous product introductions, warranty costs are expected to approximate 3% of sales. Sales and actual warranty expenditures for the first year of selling the product were:

Actual warranty
Sales	Expenditures
$15 million	$200,000

Required: 1. Does this situation represent a loss contingency? Why or why not? How should it be accounted for? 2. Prepare journal entries that summarize sales of the circuits (assume all credit sales) and any aspects of the warranty that should be recorded during 2016. 3. What amount should Fusion report as a liability at December 31, 2016?