During 2021, 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, 2021 and 2022 are as follows:

2021 ACTUAL SALES $150000. Acctual Warranty Expenditures $5250

2022 Actual SALES $250000. Acctual Warranty Expenditures $7500

What amount should Gum report as estimated warranty liability on its December 31, 2022 balance sheet?

Select one:

a.

$4,500

b.

$1,250

c.

$11,250

d.

$7,250

e.

$13,500