7. A few years ago, Flow Corporation introduced a new product carrying a two-year warranty against defects. The estimated warranty costs related to dollar sales are 1% within the first 12 months following the sale and 4% in the second i 2 months following the sale. Sales and actual warranty expenditures for the years ended December 31, 1991 are $250,000 and $6,500 respectively What amount should be reported as warranty expense for the year ended 12/31/91? A. $12,500 B. $6,000 C. $6,500 D. $2,500 E. None of the above 8. A few years ago, Baker Corporation introduced a new product carrying a two-year warranty against defects. The total future warranty costs are estimated to be 5% ofsales. Based on past history and industry averages, filed claims are expected to be twice as common in the last twelve months of the contract than in the first twelve months. At the beginning of 1991 Baker had a $25,000 balance in its warranty obligation account representing the estimated cost of un filed warranty claims from sales made in 1989 &1990. Sales for the year ended December 31, 1991 were $400,000 and during 1991 the company incurred $15,000 of cost servicing actual claims filed during 1991. What amount should be reported as warranty expense for the year ended 12/31/91? A. $30,000 B. $5,000 C. $25,000 D. $15,000 E. $20,000