Carnes Electronics sells consumer electronics that carry a $90-$day manufacturer's warranty. At the time of purchase, customers are

offered the opportunity to also buy a two$-$year extended warranty for an additional charge. During the year, Carnes recelved $$446,000$

for these extended warrantles, and on average the warrantles were $20\%$ explred by year end.

Required:

$1-$a$.$ Does this situation represent a loss contingency?

$1-$b$.$ How should it be accounted for?

Prepare journal entrles that summarize sales of the extended warrantles and recognition of any revenue assoclated with those

warrantles.