Question

Sheffield Corp. includes one coupon in each bag of dog food it sells. In return for eight coupons, customers receive a leash. The leashes cost Sheffield $4 each. Sheffield estimates that 45 percent of the coupons will be redeemed. Data for 2020 and 2021 are as follows:______.
2020 2021
Bags of dog food sold 480000 620000
Leashes purchased 19000 24000
Coupons redeemed 110000 130000
The premium liability at December 31, 2015 is?

Answer 1

Answer: $108875

Explanation:

First, we calculate the Premium liability at December 31, 2020 which will be:

= (480,000 × 45%) - $110,000/8 × 4

= (216000 - 110000)/8 × 4.

= $53000.

Premium liability at December 31, 2021 will be:

= 53000 + [(620000 × 45%) - $130,000]/8 × 3

= 53000 + 55875

= $108875