During Year 1, Gum Co. introduced a new product carrying a two-year warranty against defects. The estimated warranty costs related to dollar sales are 2% within 12 months following the sale and 4% in the second 12 months following the sale. Sales and actual warranty expenditures for the years ended December 31, Year 1 and Year 2, are as follows: Sales Actual warranty expenditures Year 1 $150,000 $ $2,250 Year 2 250,000 $400,000 $ 7,500 9,750 What amount should Gum report as estimated warranty liability in its December 31, Year 2, balance sheet? O A. $2,500 O B. $4,250 O C. $11,250 O D. $14,250

During Year 1, Gum Co. introduced a new product carrying a two-year warranty against defects. The estimated warranty costs related to dollar sales are 2% within 12 months following the sale and 4% in the second 12 months following the sale. Sales and actual warranty expenditures for the years ended December 31, Year 1 and Year 2, are as follows: What amount should Gum report as estimated warranty liability in its December 31, Year 2, balance sheet? A. $2,500 B. $4,250 C. $11,250 D. $14,250