Hairston Stamp Company records stamp service revenue and provides for the cost o

ID: 2490990 • Letter: H

Question

Hairston Stamp Company records stamp service revenue and provides for the cost of redemptions in the year stamps are sold to licensees. Hairston's past experience indicates that only 80% of the stamps sold to licensees will be redeemed. Hairston's liability for stamp redemptions was S13,128,000 at December 31, 2013. Additional information for 2014 is as follows. If all the stamps sold in 2014 were presented for redemption in 2015, the redemption cost would be S5,534,700. What amount should Hairston report as a liability for stamp redemptions at December 31, 2014? In packages of its products, Burnets Inc. includes coupons that may be presented at retail stores to obtain discounts on other Burnets products. Retailers are reimbursed for the face amount of coupons redeemed plus 10% of that amount for handling costs. Burnets honors requests for coupon redemption by retailers up to 3 months after the consumer expiration date. Burnets estimates that 60% of all coupons issued will ultimately be redeemed. Information relating to coupons issued by Burnets during 2014 is as follows. What amount should Burnets report as a liability for unredeemed coupons at December 31, 2014? Liability for unredeemed coupons $ Roland Company sold 648,000 boxes of pie mix under a new sales promotional program. Each box contains one coupon, which when submitted with $4.10, entitles the customer to a baking pan. Roland pays S6.10 per pan and $0.60 for handling and shipping. Roland estimates that 70% of the coupons will be redeemed, even though only 290,000 coupons had been processed during 2014. What amount should Roland report as a liability for unredeemed coupons at December 31, 2014? Liability for unredeemed coupons at December 31, 2014 $ Hairston Stamp Company records stamp service revenue and provides for the cost of redemptions in the year stamps are sold to licensees. Hairston's past experience indicates that only 80% of the stamps sold to licensees will be redeemed. Hairston's liability for stamp redemptions was $13,128,000 at December 31, 2013. Additional information for 2014 is as follows. If all the stamps sold in 2014 were presented for redemption in 2015, the redemption cost would be $5,534,700. What amount should Hairston report as a liability for stamp redemptions at December 31, 2014? Liability for stamp redemptions at December 31, 2014 In packages of its products, Burnets Inc. includes coupons that may be presented at retail stores to obtain discounts on other Burnets products. Retailers are reimbursed for the face amount of coupons redeemed plus 10% of that amount for handling costs. Burnets honors requests for coupon redemption by retailers up to 3 months after the consumer expiration date. Burnets estimates that 60% of all coupons issued will ultimately be redeemed. Information relating to coupons issued by Bumitz during 2014 is as follows. What amount should Burnets report as a liability for unredeemed coupons at December 31, 2014? Liability for unredeemed coupons $ Roland Company sold 648,000 boxes of pie mix under a new sales promotional program. Each box contains one coupon, which when submitted with $4.10, entitles the customer to a baking pan. Roland pays $6.10 per pan and $0.60 for handling and shipping. Roland estimates that 70% of the coupons will be redeemed, even though only 290,000 coupons had been processed during 2014. What amount should Roland report as a liability for unredeemed coupons at December 31, 2014? Liability for unredeemed coupons at December 31, 2014 $

Explanation / Answer

Liability for stamp redemptions, December 31, 2013

$ 13,128,000

Cost of redemptions redeemed in 2013

-$ 6,543,000

$ 6,585,000

Cost of redemptions to be redeemed in 2014 ($5,534,700*80%)

$ 4,427,760

Liability for stamp redemptions, December 31, 2014

$ 11,012,760

Total coupons issued

$ 902,400

Redemption rate

60%

Coupon to be redeemed

$ 541,440

Add: Handling charges ($541,440*10%)

$ 54,144

Total cost

$ 595,584

Less: Payments made to retailers

$ 356,700

Liability for unredeemed coupons

$ 238,884

Boxes sold during the year

648,000

Redemption rate

70%

Rdeemable coupons

453,600

Coupons already redeemed

290,000

Coupons to be redeemed

163,600

Net cost per coupon ($6.10+$0.60-$4.10)

$ 2.60