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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 $52502022 Actual SALES $250000. Acctual Warranty Expenditures $7500
Problem 1: What amount should Gum report as estimated warranty liability on its December 31, 2022 balance sheet?
Select one:
a. $4,500b. $1,250c. $11,250d. $7,250e. $13,500
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