As part of a promotion campaign, Funzy Cereal includes one coupon in each issue

Question

As part of a promotion campaign, Funzy Cereal includes one coupon in each issue of various national magazines and offers a toy car in exchange for $1.50 and 4 coupons. The cars cost Funzy $2.00 each. Experience indicates that 40% of the coupons eventually will be redeemed. During the last month of 2013, the first month of the offer, 12.00 million coupons were distributed and 2.40 million of the coupons were redeemed. What amount should Funzy report as a promotional expense for coupons on its December 31, 2013, income statement?

Explanation / Answer

Funzy Cereal All Amounts in $ No. of coupons redeemed 2.40 million Cost of Cars for Funzy $ 2 each Promotional Expense for Coupons 4.8 $ million

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