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 manufacturers warranty. In 2016, A.J. Smith sold extended

warranties amounting to $1,700,000. The warranty coverage for all of these begins in 2017 and runs

through 2019. 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?

b. Estimate the revenue, expense, and gross prot reported from these contracts in the year(s)

that the revenue is recognized.

c. In 2017, 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 2018 through 2020. The company sold 200 of these cameraprinter packages. Compute

the revenue that A.J. Smith should recognize in each year from 2017 through 2020