Question

During 2021, Deluxe Leather Goods issued 707,000 coupons which entitles the customer to a $5.00 cash refund when the coupon is submitted at the time of any future purchase. Deluxe estimates that 71% of the coupons will be redeemed. 261,000 coupons had been processed during 2021. Deluxe recognizes coupon expense in the period coupons are issued. At December 31, 2021, Deluxe should report a liability for unredeemed coupons of:

Answer 1

Deluxe should report a liability for unredeemed coupons of $1,204,850

Step-by-step explanation:

Estimated coupons to be redeemed $501,970

(707,000 * 71%)

Less: Coupons redeemed $261,000

Coupons unredeemed $240,970

X Cost per Coupon 5.00

Liability for unredeemed Coupons $1,204,850