Describe how to account for warranty costs if the warranty is determined to be a extended warranty? A base warranty?

What will be an ideal response?

Answer: For an extended warranty, a company defers revenue from the sale of the warranty contract and generally recognizes it as the company satisfies its performance obligation, usually on a straight-line basis over the life of the contract. Any costs necessary to satisfy the extended warranty are generally expensed as incurred. For a base warranty, a company recognizes the estimated warranty expense and a liability for future performance in the period of sale. Any costs incurred to satisfy the base warranty generally reduce the warranty liability.