Question 1. In packages of its products, Coyote Corp. includes coupons that may be presented at retail stores to obtain discounts on other Coyote products. Retailers are reimbursed for the face amount of coupons redeemed plus 10% of that amount for handling costs. Coyote honors requests for coupon redemption by retailers up to 3 months after the consumer expiration date. Coyote estimates that 30% of all coupons issued will ultimately be redeemed. Information relating to coupons issued by Coyote during
2010 is as follows.
Consumer expiration date 12/31/10
Total face amount of coupons issued $500,000
Total payments to retailers as of 12/31/10 115,000
What amount should Coyote report as a liability for unredeemed coupons at December 31, 2010?
Question 2. Northeastern Company sold 1,000,000 boxes of cereal under a new sales promotional program. Each box contains one coupon, which submitted with $2.00, entitles the customer to a stuffed animal. Northeastern pays $4.00 per stuffed animal and $1.20 for handling and shipping. Northeastern estimates that 40% of the coupons will be redeemed, even though only 100,000 coupons had been processed during 2010.
What amount should Northeastern report as a liability for unredeemed coupons at December 31, 2010?