Albertson Corporation began a special promotion in July 2006 in an attempt to increase sales. A coupon was placed in each box of product. Customers could send in 5 coupons for a free prize. Each prize cost Albertson Corporation $3.00.
Albertson's management estimated that 80% of the coupons would be redeemed.
For the six months ended December 31, 2006, the following information is available:
Products sold 2,000,000 boxes
Prizes purchased 240,000
Coupons redeemed 560,000
What is the balance in the estimated liability for the premium account at December 31, 2006?
Products sold =2,000,000
80% of the coupons would be redeemed.
Coupons to be redeemed = 2,000,000X0.8 = ...
The solution explains step-by-step how to calculate the estimated liability on account of placing coupons with products. The coupons can be redeemed later for prizes.