During the year,L&M Leather Goods sold 1,000,000 reversible belts under a new sales promotional program.Each belt carried one coupon,which entitles the customer to a $4.00 cash rebate.L&M estimates that 70% of the coupons will be redeemed,even though only 500,000 coupons had been processed during the year.At December 31,L&M should report a liability for unredeemed coupons of:

Question

Quizplus · Accepted Answer

L&M sold 1,000,000 belts and each belt carried one coupon, so they issued 1,000,000 coupons. They estimate 70% of the coupons will be redeemed, which means 700,000 coupons will be redeemed. However, only 500,000 coupons were processed during the year. This means there are still 200,000 coupons that have not been redeemed yet. The liability for these unredeemed coupons is $4.00 per coupon, so the liability for unredeemed coupons is $4.00 x 200,000 = $800,000. Therefore, the correct answer is B.

During the Year,L&M Leather Goods Sold 1,000,000 Reversible Belts Under