The Holcombe Food Company distributes coupons which the consumer may present (on

Question

The Holcombe Food Company distributes coupons which the consumer may present (on or before a stated expiration date) to grocers for discounts on certain products of Holcombe. The grocers are reimbursed when they send the coupons to Holcombe. In Holcombe's experience, 50% of such coupons are redeemed, and generally one month elapses between the date a grocer receives a coupon from a consumer and the date Holcombe receives it. Last year, Holcombe issued two separate series of coupons as follows:

Issued on Total Value Expiration date Amt. disbursed as of 12/31
1/1 $ 125,000 6/30 $ 59,000
7/1 $ 180,000 12/31 $ 75,000

The only journal entries to date recorded debits to coupon expense and credits to cash of $134,000. Last year's December 31 balance sheet should include a liability for unredeemed coupons of: a.$0 b. $15,000 c. $31,000 d.$90,000

Explanation / Answer

In Halcombe's experience ,50% of the coupons are redeemed .

Coupons issued on 7/1 / - 180,000

These coupons can be reddemed after 31/12

Hence, Halcombe provides for a liability of $90,000

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