The Salty Chip Company includes one coupon having no expiration date with its deluxe snack pack. Upon return of 10 coupons, Salty Chip will send a silver chip clip, which costs Salty Chip $1.50 each. Past experience indicates that 30% of coupons issued will be redeemed. Salty Chip began this promotion in 2013 and sold 1,000,000 deluxe snack packs. During 2013, 90,000 coupons were received and 9,000 chip clips were distributed to customers. The December 31, 2013 balance sheet should include a liability for coupons outstanding of

Question

Quizplus · Accepted Answer

The total number of coupons issued during 2013 was 1,000,000 snack packs x 1 coupon per pack = 1,000,000 coupons.
Based on past experience, 30% of coupons issued will be redeemed, so the expected number of coupons to be redeemed is 1,000,000 x 30% = 300,000 coupons.
Since only 90,000 coupons were actually redeemed in 2013, there are still 300,000 - 90,000 = 210,000 coupons outstanding.
Each coupon represents a $1.50 liability for Salty Chip (since that is the cost of the silver chip clip), so the liability for coupons outstanding is 210,000 coupons x $1.50 per coupon = $315,000.
Therefore, the December 31, 2013 balance sheet should include a liability for coupons outstanding of $31,500 (which is the closest answer).

The Salty Chip Company Includes One Coupon Having No Expiration