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    This posting addresses the liability for premiums.

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    Mott Co. includes one coupon in each bag of dog food it sells. In return for eight coupons, customers receive a leash. The leashes cost Mott $2.00 each. Mott estimates that 40% of the coupons will be redeemed. Data for 2010 and 2011 are as follows.

    2010 2011
    Bags of dog food sold 500,000 600,000
    Leashes purchased 18,000 22,000
    Coupons redeemed 120,000 150,000

    The estimated liability for premiums at December 31, 2011 is:
    a) 11,250
    b) 21,250
    c) 22,500
    d) 42,500

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    https://brainmass.com/business/accounting-for-liabilities/this-posting-addresses-the-liability-for-premiums-464789

    Solution Preview

    Answer to your homework study question:

    600,000 / 8 = 75000 * .40 = 30,000 * 2 = 60000

    60000 - (150,000 / 8 * 2) = 60,000 - 37500
    ...

    Solution Summary

    The solution provides the exact calculations to determine the liability for premiums for Mott Co.

    $2.19

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