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What amount should gum report as estimated warranty

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Reference no: EM132996307

During 20x7, Gum Co. introduced a new product carrying a two-year warranty against defects: The estimated warranty costs related to peso 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, 20x7 and 20x8 are as follows:
Year 20x7 - 150,000 Sales - 2,250 Actual warranty expenditures
Year 20x8 - 250,000 Sales - 7,500 Actual warranty expenditures
Total Sales - 400,000
Total Actual warranty expenditures - 9,750

Problem 1: What amount should Gum report as estimated warranty liability in its December 31, 20x8 statement of financial position?

a. 2,500
b. 4,250
c. 11,250
d. 14,250

Reference no: EM132996307

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