During 2015, Gum Co. introduced a new product carrying a two-year assurance-type warranty against defects. Gum Co. uses the expense warranty approach. The estimated warranty costs related to dollar sales are 6%. Sales and actual warranty expenditures for the years ended December 31, 2015 and 2016 are as follows:

sales actual warranty expenditure

2015 $150,000 $2,250

2016 250,000 7,500

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$400,000 $9,750

What amount should Gum report as estimated warranty liability on its December 31, 2016 balance sheet?

Select one:

a.$7,500

b.$4,250

c.$11,250

d.$14,250

e.$16,500