Composite Provides Extended Service Contracts on Electronic Equipment Sold Through

Multiple Choice

Composite provides extended service contracts on electronic equipment sold through major retailers. The standard contract is for four years. During the current year, Composite provided 42,000 such warranty contracts at an average price of $81 each. Related to these contracts, the company spent $400,000 servicing the contracts during the current year and expects to spend $2,100,000 more in the future. What is the net profit that the company will recognize in the current year related to these contracts?

A) $902,000.
B) $3,002,000.
C) $400,000.
D) $450,500.