Question

se Cereal frequently distributes coupons to promote new products. On October 2, 2018, Case mailed 900,000 coupons for $0.35 off each box of cereal purchased. Case expects 110,000 of these coupons to be redeemed before the March 31, 2019, expiration date. Case reimburses the retailers an additional s0. 05 for each coupon redeemed. As of December 31, 2018, Case had paid retailers $23,000 related to these coupons and had 40,000 coupons on hand that had not been processed for payment Required: Determine the Coupon (Premium) Liability to be reported on the Dec 31, 2018, balance sheet

Answer 1

Case expects 110,000 coupons to be redeemed at a total cost of
$0.40 ($0.35+0.05)
total expected redemptions=110,000*0.40=				$        44,000
by 31/12/18 $23000 has been paid
so a liability of $44000-$23000=			$           21,000
must be established
this liability includes both the payments due for remaining 40000 coupons
and payments due on coupons to be received within first 30 days of expiration date