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 4%. Sales and actual warranty expenditures for the years ended December 31, 2015 and 2016 are as follows:

sales actual warranty expenditures

2015. $150,000. $2,250

2016. $250,000. 6.250 What amount should Gum report as warranty expense on its 2016 income statement?

Select one:

a. $7,500

b. $10,000

c. $3,750

d. $1,250

e. $6,250