Question

During the year, L&M Leather Goods sold 1,020,000 reversible belts under a new sales promotional program. Each belt carried one rebate certificate which entitles the customer to a $4.90 cash refund when the rebate is submitted for redemption. L&M estimates that 78% of the rebates will be redeemed. 493,000 rebates had been submitted for redemption during the year. At December 31, L&M should report a liability for unredeemed rebate certificates of .... $2,415,700. $1,482,740. $3,898,440. $795,600.

Answer 1

To calculate the liability for unredeemed rebate certificates, subtract the number of rebates redeemed from the total number of rebate certificates. Multiply the number of unredeemed rebates by the cash refund amount to find the liability.

Step-by-step explanation:

In this question, L&M Leather Goods sold 1,020,000 reversible belts with rebate certificates. The certificates entitled customers to a $4.90 cash refund when redeemed. L&M estimates that 78% of the rebates will be redeemed.

To calculate the liability for unredeemed rebate certificates, we need to multiply the number of unredeemed rebates by the cash refund amount. The number of unredeemed rebates can be calculated by subtracting the number of rebates redeemed from the total number of rebate certificates. Finally, multiply the number of unredeemed rebates by the cash refund amount to find the liability.

In this case, the number of unredeemed rebates is 1,020,000 - 493,000 = 527,000. Therefore, the liability for unredeemed rebate certificates is $4.90 x 527,000 = $2,581,300.

Answer 2

After calculating the expected rebates and subtracting the rebates already redeemed, L&M should report a liability for unredeemed rebate certificates of $1,482,740.

Step-by-step explanation:

L&M Leather Goods sold 1,020,000 reversible belts with a $4.90 rebate per belt, anticipating a 78% redemption rate. To calculate the liability for unredeemed rebate certificates at the end of the year, the following steps must be followed:

1. Determine the total number of rebates expected to be redeemed by multiplying the total belts sold by the estimated redemption rate (1,020,000 belts * 78% = 795,600 expected redemptions).
2. Calculate the expected rebate payout by multiplying the number of expected redemptions by the rebate amount per belt (795,600 * $4.90 = $3,898,440).
3. Subtract the amount already paid out from the redemptions made during the year (493,000 redemptions * $4.90 = $2,415,700) from the expected payout.
4. Calculate the remaining liability by subtracting the amount already redeemed from the total expected rebate payout ($3,898,440 - $2,415,700 = $1,482,740).

Therefore, L&M should report a liability for unredeemed rebate certificates of $1,482,740.