1.Dusty Johnson is the accounting and finance manager for a manufacturer. At year end, he must determine how to account for the company's contingencies. His manager, Tom Pretti, objects to Johnson's proposal to recognize an expense and a liability for warranty service on units of a new product introduced in the fourth quarter. Pretti comments, There's no way we can estimate this warranty cost. We don't owe anyone anything until a product fails and it is returned. Let's report an expense if and when we do any warranty work.
Required:
Prepare a one page memorandum for Johnson to send to Pretti defending his proposal.