Use appropriate citations where relevant and according to your professional judgment. For questions requiring use of the codification, please use the following style: 1) Cite the ASC down to the paragraph. For example, (ASC 330-10-05-01) 2) Copy-paste in quotation mark, the paragraph you cite from the codification into the word document. 3) Interpret the codification paragraph into ‘plain English’ as best you can. In other words, how would you explain the appropriate accounting treatment to a colleague, boss, or business partner who has a basic understanding of accounting? You may (and are encouraged to) use debits and credits or “T-accounts” to illustrate the accounting if appropriate. 1. Orange Co. manufactures luxury watches. The company is known for the quality of its products and offers one of the best warranties in the industry on its higher-priced products—a lifetime guarantee, performing all the warranty work in its own shops. The warranty on these products is included in the sales price. Due to the recent introduction and growth in sales of some products targeted to the low-price market, Orange is considering partnering with another company to do the warranty work on this line of products, if customers purchase a service contract at the time of original product purchase. How do you think Orange should account for this new warranty arrangement. (a) Identify the accounting standards that addresses the accounting for the type of separately priced warranty that Orange is considering. (b) When are warranty contracts considered separately priced? (c) What are incremental direct acquisition costs and how should they be treated?