This Is Not a Loss Contingency

Essay

This is not a loss contingency. An extended warranty is priced and sold separately from the warranted product and therefore, essentially constitutes a separate sales transaction. Since the earning process for an extended warranty continues during the contract period, revenue should be recognized over the same period. Revenue from separately priced extended warranty contracts are deferred as a liability at the time of sale, and recognized over the contract period on a straight-line basis.
2. Sale of extended warranty: