During 2009, Deluxe Leather Goods sold 800,000 reversible belts under a new sales promotional program. Each belt carried one coupon, which entitles the customer to a $5.00 cash rebate. Deluxe estimates that 70% of the coupons will be redeemed, even though only 350,000 coupons had been processed during 2009. At December 31, 2009, Deluxe should report a liability for unredeemed coupons of:

Question

Quizplus · Accepted Answer

The estimated number of coupons that will be redeemed is 70% of 800,000 or 560,000 coupons. Each coupon entitles the customer to a $5.00 cash rebate so the liability for unredeemed coupons is (800,000 - 560,000) x $5.00 = $1,200,000. Since only 350,000 coupons had been processed during 2009, the liability for unredeemed coupons at December 31, 2009 is $1,200,000 - (350,000 x $5.00) = $1,050,000. Therefore, the best choice is option B.

During 2009, Deluxe Leather Goods Sold 800,000 Reversible Belts Under