Vignette II

Minnewaska Company manufactures motorcycle accessories and provides a ten-year warranty on its more expensive products. The warranty on these products is included in the sales price.

In recent years there has been significant growth in sales of some products catering to the low-price segment of the market. Minnewaska is considering collaborating with another company to perform the warranty work on this line of products, for customers who purchase a service contract at the time of original product purchase. Such a service contract would constitute a separately priced extended warranty.

When shall a loss be recognized on an extended warranty? Provide a FASB Codification reference for your response.