Question

1. Vaughn Stamp Company records stamp service revenue and provides for the cost of redemptions in the year stamps are sold to licensees. Vaughn's past experience indicates that only 80% of the stamps sold to licensees will be redeemed. Vaughn's liability for stamp redemptions was $13,481,800 at December 31, 2019. Additional information for 2020 is as follows. Stamp service revenue from stamps sold to licensees Cost of redemptions (stamps sold prior to 1/1/20) $8,948,600 6,238,300 If all the stamps sold in 2020 were presented for redemption in 2021, the redemption cost would be $5,409,200. What amount should Vaughn report as a liability for stamp redemptions at December 31, 2020? Liability for stamp redemptions at December 31, 2020 2. In packages of its products, Bramble Inc. includes coupons that may be presented at retail stores to obtain discounts on other Bramble products. Retailers are reimbursed for the face amount of coupons redeemed plus 10% of that amount for handling costs. Bramble honors requests for coupon redemption by retailers up to 3 months after the consumer expiration date. Bramble estimates that 60% of all coupons issued will ultimately be redeemed. Information relating to coupons issued by Bramble during 2020 is as follows. Consumer expiration date Total face amount of coupons issued Total payments to retailers as of 12/31/20 12/31/20 $755,900 322,660 What amount should Bramble report as a liability for unredeemed coupons at December 31, 2020? Liability for unredeemed coupons $ 3. Sunland Company sold 718,300 boxes of pie mix under a new sales promotional program. Each box contains one coupon, which submitted with $4.60, entitles the customer to a baking pan. Sunland pays $6.60 per pan and $1.10 for handling and shipping. Sunland estimates that 70% of the coupons will be redeemed, even though only 260,100 coupons had been processed during 2020. What amount should Sunland report as a liability for unredeemed coupons at December 31, 2020? Liability for unredeemed coupons at December 31, 2020

Answer 1

1) Liability for stamp redemptions at December 31 ,2020:

Liability for stamp redemptions at December 31 ,2019 = $13,481,800

Less:Cost of redemption redeemed in 2020 = ($6,238,300)

= $7,243,500

Add:Cost of redemption to be redeemed in 2021 = $4,327,360 ($5,409,200 * 80%)

Liability for stamp redemption at December 31 ,2020 = $11,570,860

2)

Face amount of coupon issued = $755,900

Face amount of coupons expected to redeemed = 60% of $755,900 = $453,540

Amount to be paid to retailers = Face Value + 10% handling charges

= $453,540 + (10% of $453,540)

= $498,894

Amount paid to retailers as of 12/31/20 = $322,660

Liability for umredeemed coupons = $498,894 - $322,660 = $176,234

3)

Liability to be booked for one redeemable coupon = $6.6 + $1.1 - $4.6 = $3.1

Boxes sold during year = 718,300 boxes

Redeemable coupons = 70% of 718,300 = 502,810 boxes

Coupons redeemed = 260,100

Unredeemed coupon = 502,810 - 260,100

= 242,710

Liability for unredeemed coupons = 242,710 * $3.1 per coupon

= $752,401