Trail Runner Equipment guarantees its snowmobiles for three years. Company experience indicates that warranty costs will be approximately $6\%$ of sales. Assume that the Trail Runner Equipment dealer in Colorado Springs made sales totaling $$400,000$ during $2025.$ The company received cash for $20\%$ of the sales and notes receivable for the remainder. Warranty payments totaled $$23,000$ during $2025.$ Read the requirements.

Record the warranty expense.

$\backslash$table$[[$Date$,$Accounts and Explanation,Debit,Credit$],[2025,$Warranty Expense,$24,000,24,000,$

Speedy Motors, a motorcycle manufacturer, had the following contingencies. Determine the appropriate accounting treatment for each of the situations Speedy Motors is facing

a$.$ Speedy Motors estimates that it is reasonably possible but not likely that it will lose a current lawsuit. Speedy Motors" attorneys estimate the potential loss will be $$3,500,000.$

b$.$ Speedy Motors received notice that it was being sued. Speedy Motors considers this lawsuit to be frivolous.

c$.$ Speedy Motors is currently the defendant in a lawsuit. Speedy Motors believes it is likely that it will lose the lawsuit and estimates the damages to be paid will be $$85,000.$