Question

Crane Company distributes to consumers coupons which may be presented (on or before a stated expiration date) to grocers for discounts on certain products of Crane. The grocers are reimbursed when they send the coupons to Crane. In Crane's experience, 50% of such coupons are redeemed, and generally one month elapses between the date a grocer receives a coupon from a consumer and the date Crane receives it. During 2018 Crane issued two separate series of coupons as follows:
Issued On Total Value Consumer Expiration Date Amount Disbursed as of 12/31/18
1/1/18 $510000 6/30/18 $234000
7/1/18 830000 12/31/18 355000

The only journal entry recorded to date is: debit to coupon expense and credit to cash of $817000. The December 31, 2018 balance sheet should include a liability for unredeemed coupons of:__________

a. $0.
b. $70,000.
c. $184,000.
d. $420,000.

Answer 1

Answer:

Liability of un-redeemed coupons Pending on December 31, 2018 is $60,000

Explanation:

Coupon already expired issued on Jan 01, 2018      

Coupon issued on 07/01/2018                                 $830,000

Estimated redeemable coupon value - 50%           $415,000

($830,000 * 50%)

Less : Disbursed                                                        $355,000

Liability pending on Dec. 31, 2018                         $60,000