Question

Flavor Food Company distributes to consumers coupons which may be presented (on or before a stated expiration date) to grocers for discounts on certain products of Flavor. The grocers are reimbursed when they send the coupons to Flavor. In Flavor'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 Flavor receives it. During 2018 Flavor issued two separate series of coupons as follows: Consumer Amount Disbursed Issued On Total Value Expiration Date as of 12/31/18 1/1/18 $500,000 6/30/18 $236,000 7/1/18 840,000 12/31/18 350,000 The only journal entry recorded to date is: debit to coupon expense and credit to cash of $815,000. 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:

b) $70,000.

Explanation:

The computation of the liability for unredeemed coupons would be

= Coupon expired × given percentage - disbursement amount

= $840,000 × 50% - $350,000

= $420,000 - $350,000

= $70,000

Simply we take the percentage of coupon expired amount and deducted to disbursement amount so that the correct amount can come

All other information which is given is not relevant. Hence, ignored it