Premiums
Fido Corp. includes one coupon in each bag of dog food it sells. In return for three coupons, customers receive a dog toy that the company purchases for $ 1.20 each. Fido's experience indicates that 60% of the coupons will be redeemed. During 2020, 100,000 bags of dog food were sold, 12,000 toys were purchased, and 45,000 coupons were redeemed. During 2021, 120,000 bags of dog food were sold, 16,000 toys were purchased, and 60,000 coupons were redeemed.
Instructions
Determine the premium expense to be reported in the income statement and the estimated liability for premiums on the statement of financial position for 2020 and 2021.

Question

Quizplus · Accepted Answer

The Answer of Premiums
Fido Corp. includes one coupon in each bag of dog food it sells. In return for three coupons, customers receive a dog toy that the company purchases for $ 1.20 each. Fido's experience indicates that 60% of the coupons will be redeemed. During 2020, 100,000 bags of dog food were sold, 12,000 toys were purchased, and 45,000 coupons were redeemed. During 2021, 120,000 bags of dog food were sold, 16,000 toys were purchased, and 60,000 coupons were redeemed.
Instructions
Determine the premium expense to be reported in the income statement and the estimated liability for premiums on the statement of financial position for 2020 and 2021.

Premiums Fido Corp. Includes One Coupon in Each Bag of Dog