During the year, L&M Leather Goods sold 1,000,000 reversible belts under a new s

Question

During the year, L&M Leather Goods sold 1,000,000 reversible belts under a new sales promotional program. Each belt carried one coupon, which entitles the customer to a $3.90 cash rebate. L&M estimates that 78% of the coupons will be redeemed, even though only 507,000 coupons had been processed during the year. At December 31, L&M should report a liability for unredeemed coupons of:

During the year, L&M Leather Goods sold 1,000,000 reversible belts under a new sales promotional program. Each belt carried one coupon, which entitles the customer to a $3.90 cash rebate. L&M estimates that 78% of the coupons will be redeemed, even though only 507,000 coupons had been processed during the year. At December 31, L&M should report a liability for unredeemed coupons of:

Explanation / Answer

Hi,

Please find the detailed answer as follows:

Option A (1064700) is the correct answer.

Explanation:

Total Estimated Value of Coupon Redemption = 1000000*3.90*78% = 3042000

Less Value of Coupons Processed during the Year = 507000*3.90 = 1977300

Liability for Unredeemed Coupons = 3042000 - 1977300 = 1064700

Thanks.

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