Answer:
promotional expense 80,000
Explanation:
12,000,000 x 0.04 = 480,000 coupon
cost 1.5 - price 1 = 0.5 loss
480,000/3 = 160,000 toy car
160,000 x 1.5 = 240,000 value of the toys
160,000 x 0.5 = 80,000 expected promotional expense
redeem toys during december
240,000/3 = 80,000 toy car
80,000 x 0.5 = 40,000 value of the coupon redeem
the accounting will work as follow:
toy car 160,000
cash 160,000
purchase of the toy car.
promotional expense 80,000
premium liablity 80,000
we declare the expense associate with the coupon for the coupon of the period. That's because coupon from december may be redeem on january or other month, so we need to match now the expense associate with december magazines.
premium liablity 40,000
cash 80,000
toy car 120,000
when we deliver the toy car their account decrease, we are receiving cash as well as decreasing the liablity, because less toys are expected to redeem in the future.
