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    Estimated liability due to coupons with products

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    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?

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    Solution Preview

    Products sold =2,000,000
    80% of the coupons would be redeemed.
    Coupons to be redeemed = 2,000,000X0.8 = ...

    Solution Summary

    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.