After expanding Smith Sales Company, Tom Smith asked you to become the controller of the company. Upon accepting the job, you realize that by offering a warranty on several products, Smith Sales Comp

After expanding Smith Sales Company, Tom Smith asked you to become the controller of the company. Upon accepting the job, you realize that by offering a warranty on several products, Smith Sales Company could significantly raise revenues. Tom understands the benefits of offering warranties, but does not understand the accounting for them.

Explain to Tom:

1. The rational for accounting for contingent liabilities, and

2. The procedure for estimating and recording warranty expense.

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