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? Assume that providing the warranty coverage is considered a single performance obligation that is fulfilled over time.

b. Estimate the revenue, expense, and gross profit reported from these contracts in the year(s) that the revenue is recognized.

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.