A company offers a cash rebate of $1 on each $4 package of light bulbs sold during 2010. Historically, 10% of customers mail in the rebate form. During 2010, 4,000,000 packages of light bulbs were sold, and $140,000 in $1 rebates are mailed to customers. What is the rebate expense and liability, respectively, on the 2010 financial statements dated December 31?
a) $400,000; $400,000
b) $400,000; $260,000
c) $260,000; $260,000
d) $140,000; $260,000
The solution shows the exact calculation for determining the rebate expense and liability that will appear on the financial statements.