Utley Trading Stamp Co If All the Stamps Sold in 2006 Were Presented for the Cost

Multiple Choice

Utley Trading Stamp Co.records stamp service revenue and provides for the cost of redemptions in the year stamps are sold to licensees.Utley's past experience indicates that only 80% of the stamps sold to licensees will be redeemed.Utley's liability for stamp redemptions was $7,500,000 at December 31, 2005.Additional information for 2006 is as follows: $\begin{array} { l } \text {Stamp service revenue from stamps sold to licensees }&\$5,000,000\\ \text { Cost of redemptions}&3,400,000\\\end{array}$
If all the stamps sold in 2006 were presented for redemption in 2007, the redemption cost would be $2,500,000.What amount should Utley report as a liability for stamp redemptions at December 31, 2006?

A) $9,100,000.
B) $6,600,000.
C) $6,100,000.
D) $4,100,000.