Verizon introduced a new line of smartphones in 2021 that carry a two-year warranty against manufacturer’s defects. Based on their experience with previous product introductions, warranty costs are expected to approximate 1% of sales. Sales and actual warranty expenditures for the first year of selling the smartphones were: Sales Actual WarrantyExpenditures$5,900,000 $37,750Required:1. Does this situation represent a loss contingency?2. Prepare Verizon's journal entries that summarize sales of the smartphones (assume all credit sales) and any aspects of the warranty that should be recorded during 2021.3. What amount should Verizon report as a liability at December 31, 2021?