During 2010, Gum Co. introduced a new product carrying a two-year warranty against defects. The estimated warranty costs related to dollar sales are 2% within twelve months following the sale and 4% in the second twelve months following the sale. Sales and actual warranty expenditures for the years ended December 31, 2010 and 2011, are as follows:

Sales Actual warranty expenditures 2010 $150,000 $2,250 2011 250,000 7,500

$400,000 $9,750 What amount should Gum report as estimated warranty liability in its December 31, 2011 balance sheet?

a. $ 2,500

b. $ 4,250

c. $11,250

d. $14,250