Consumer expiration date 12/31/2010 Total face amount of coupons issued $850,000 Total payments to retailers as 12/31/10 330,000 What amount should Wiseman report as a liability for unredeemed coupons at December 31, 2010? Total coupons issued $850,000 Redemption rate 60% To be redeemed $510,000 Handling charges ($480,000 * 10%) $51,000 Total cost $561,000 Total cost $561,000 Total payments to retailers -330,000 Liability for unredeemed coupons $231,000
3 Newell Company sold 600,000 boxes of pie mix under a new sales promotional program. Each box tains one coupon, which submitted with $4.00, entitles the customer to a baking pan. Newell pays $6 per pan and $0.50 for handling and shipping. Newell estimates that 70% of the coupons will be redeemed, even though only 250,000 coupons had been processed during 2010. What amountshould Newell report as a liability for unredeemed coupons at December 31, 2010?
relative to the transactions above have been recorded, prepare any adjusting journal entries concerning interest that are necessary to present fair financial statements at December 31. Assume straight-line amortization of discounts. Solutions: subject to cash discount terms of 2/10, n/30. Purchases and accounts payable are recorded by the corporation at net amounts after cash discounts. The invoice was paid on February 26. (a) 2-Feb Purchases ($70,000 * 98%) 68,600 Accounts Payable 68,600 (The net method assumes the discount is realized and records the lowest amount payable) 26-Feb Accounts Payable 68,600 Purchase Discounts Lost 1,400 Cash 70,000 (Because the invoice was paid after the discount period, we have to show the increase to the purchases discount lost. Also, when we actually pay this invoice, we are reducing our previously outstanding A/P as well as decreasing our cash.) (b) No adjustment is necessary $4,000 in cash and signing a one-year,12% note for the balance of the purchase price. (a) 2-Apr Truck 50,000 Cash 4,000 Notes Payable 46,000 (b) Adjusting entry for interest: 31-Dec Interest Expense ($46,000 * 12% * 9/12) 4,140 1) On February 2, the corporation purchased goods from Martin Company for $70,000 2) On April 1, the corporation bought a truck for $50,000 from General Motors Company, paying
Interest Payable 4,140 $92,000 non-interest bearing note due one year from May 1. Therefore, the entries would be: 1-May Cash 83,000 Discount on Notes Payable 9,000 Notes Payable 92,000 (b) Adjusting entry for interest: 31-Dec Interest Expense ($9,000 * 8/12) 6,000 Discount on Notes Payable 6,000 September 10 to stockholders of record on August 31.