A company sells cereal in boxes, each of which has a coupon on it. A customer ca

Question

A company sells cereal in boxes, each of which has a coupon on it. A customer can mail in for coupons and receive a check for two dollars. During year one, the company sell 600,000 boxes and anticipates that 40% of the coupons will eventually be returned. By the end of your one, 88,000 coupons have been returned. What liability should the company recognize at the end of your one? A company sells cereal in boxes, each of which has a coupon on it. A customer can mail in for coupons and receive a check for two dollars. During year one, the company sell 600,000 boxes and anticipates that 40% of the coupons will eventually be returned. By the end of your one, 88,000 coupons have been returned. What liability should the company recognize at the end of your one?

Explanation / Answer

Based on estimate, company should recognize liabilities for 240,000 coupons (40%*600000). These coupons to be reduced by 88,000 coupons that the company has already received (assuming that company paid for it already).

Liability company should recognize=(600000*40%-88000)*2=$304,000

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