Question

During 2018, Deluxe Leather Goods issued 805,000 coupons which entitles the customer to a $5.10 cash refund when the coupon is submitted at the time of any future purchase. Deluxe estimates that 75% of the coupons will be redeemed. 275,000 coupons had been processed during 2018. At December 31, 2018, Deluxe should report a liability for unredeemed coupons of:

Answer 1

Answer: $1,676,625

Step-by-step explanation:

First calculate the total number of coupons to be redeemed. Deluxe estimates that 75% will be redeemed so the total number should be,

= 805,000 * 75%

= 603,750

Unfortunately only 275,000 coupons were processed so the number of coupons unredeemed would be,

= 603,750 - 275,000

= 328,750

328,750 coupons were not redeemed out of the estimate.

The value of these coupons not redeemed will therefore be,

= 328,750 * 5.1 ( value of coupon)

= $1,676,625

The Liability for the Unredeemed Coupons is therefore $1,676,625.