What amount should gum report as estimate warranty liability

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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 $5250
2022 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. $4,500
b. $1,250
c. $11,250
d. $7,250
e. $13,500

Reference no: EM132778301

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