Question

Use the following to answer questions 17 and 18:

In 2021, Keith Moon Inc. offers a $20 cash rebate coupon to customers who purchased one of its new line of products. Moon sold 10,000 of these products during the year. By the end of 2021, 7,600 of the rebates had been claimed, and 7,100 had been paid. Moon’s historical experience with such rebates indicates that 85% of customers claim the rebates. Customers have until June 30, 2022 to claim their rebates.

17. The total promotion rebate expense Moon should report on its 2021 income statement is:

A) $142,000

B) $152,000

C) $170,000

D) $200,000

18. The promotion rebate liability Moon would report on its December 31, 2021 balance sheet is:

A) $20,000

B) $28,000

C) $18,000

D) $58,000.

Answer 1

17.

Option (c) $ 170,000 is correct.

Promotion rebate expense = 10,000 x $20 x 85%

= $170,000

Note: As per matching concept expense should be recognized in the year of revenue regognized.

18.

Option (b) $28,000 is correct.

Promotion rebate liability = Total expense recognized - Amount paid for the expense

= $170,000 - (7,100 x $20)

= $28,000