Hayley Company offers a warranty to its customers. Warranty expenditures are estimated to be 4 percent of sales. The following information relates to the companys first two years of business:

Sales Year 1 $100,000

Actual warranty repairs Year 1 3,000

Sales Year 2 $150,000

Actual warranty repairs Year 2 6,500

Compute the balance in the Warranty Liability account at the end of Year 2. Note: The Warranty Liability amount at the beginning of Year 1 was $0.

$500

$1,000

$1,500

$10,000

$9,500