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Liability for outstanding premiums

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Milner Frosted Flakes Company offers its customers a pottery cereal bowl if they send in 3 boxtops from Milner Frosted Flakes boxes and $1.00. The company estimates that 60% of the boxtops will be redeemed. In 2007, the company sold 675,000 boxes of Frosted Flakes and customers redeemed 330,000 boxtops receiving 110,000 bowls. If the bowls cost Milner Company $2.50 each, how much liability for outstanding premiums should be recorded at the end of 2007?

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The solution gives a step-by-step explanation of how to determine the amount of liability for outstanding premiums for a company.

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