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 received $$412,000$

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

Required:

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

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

Prepare journal entries that summarize sales of the extended warranties and recognition of any revenue associated with those

warranties.

$2.$ Prepare a journal entry that summarize sales of the extended warranties and recognition of any revenue associated with those warranties.