Question

Waterway Frosted Flakes Company offers its customers a pottery cereal bowl if they send in 3 boxtops from Waterway Frosted Flakes boxes and $2. The company estimates that 60% of the boxtops will be redeemed. In 2018, the company sold 1365000 boxes of Frosted Flakes and customers redeemed 660000 boxtops receiving 220000 bowls. If the bowls cost Waterway Company $4 each, how much liability for outstanding premiums should be recorded at the end of 2018?

Answer 1

$106,000

Step-by-step explanation:

Amount of liability for outstanding premiums to be recorded at the end of 2018:

= {[(Boxes sold × 60% box tops redeemed) - Box tops redeemed] ÷ No. of Box tops send} × (Bowl cost - $2)

= {[(1,365,000 × 0.60) - 660,000] ÷ 3} × $2

= {819,000 - 660,000] ÷ 3} × $2

= {159,000 ÷ 3} × $2

= 53,000 × $2

= $106,000