Question

General Product Inc. distributed 100 million coupons in 2018. The coupons are redeemable for 30 cents each. General anticipates that 70% of the coupons will be redeemed. The coupons expire on December 31, 2019. There were 45 million coupons redeemed in 2018 and 30 million redeemed in 2019. What was General's coupon liability as of December 31, 2018?
(A) $7.5 million.
(B) $21.0 million.
(C) $16.5 million.
(D) $13.5 million.

Answer 1

Answer:

Option (A) 7.5 million

Explanation:

General coupon liability

= Coupon liability - (Actual redemption × Reedemable coupons)

also,

Coupon liability = Sales × Reedemable coupons × 70%

or

Coupon liability = 100 million × $0.30 × 0.7

or

Coupon liability = 100 million × $0.30 × 0.7 = 21 million

therefore,

General coupon liability

= $21 million - ( 45 million × $0.30 )

= $21 million - $13.5 million

= $7.5 million

Hence,

the correct answer is option (A) $7.5 million