Whalens Corporation buys large screen televisions for $500 each and sells them for $1,200 each. During Year One, 8,000 sets were bought and sold for cash. Whalens estimates that 1 percent of all sets will break during Year Two. Company officials believe they will cost $150 to fix. Whalens offers a one-year warranty for $40. A total of only 700 customers choose to buy the warranty. In Year Two, nine of the televisions under warranty break but cost only $140 to repair.
A) At the end of Year One, what revenue and expense should Whalens report in connection with this warranty?
B) At the end of Year Two, what revenue and expense should Whalens report in connection with this warranty?