B is corrent. Two separate series of coupons were mailed to consumers during year 1. The first series expired on 6/30/Y1 and the problem indicated that Blake honors requests for coupon redemption by retailers only up to 3 months after the consumer expiration date. Therefore, no liability should be accrued for the Series A coupons. Payments of $40,500 have been made to retailers on the Series B coupons which expired on 12/31/Y1. To find the 12/31/Y1 liability, the $40,500 payments must be compared with the total expected payments to be made on the Series B coupons. Since Blake’s experience is that 60% of the coupons will be redeemed, $120,000 face value of Series B coupons are expected to be redeemed (60% × $200,000). Additionally, $12,000 is expected to be paid to retailers for handling ($120,000 × 10%). Thus, an accrued liability of $91,500 is required ($132,000 expected total payments – $40,500 payments to date).
A is incorrect. Two separate series of coupons were mailed to consumers during year 1. The first series expired on 6/30/Y1 and the problem indicated that Blake honors requests for coupon redemption by retailers only up to 3 months after the consumer expiration date. Therefore, no liability should be accrued for the Series A coupons. Payments of $40,500 have been made to retailers on the Series B coupons which expired on 12/31/Y1. To find the 12/31/Y1 liability, the $40,500 payments must be compared with the total expected payments to be made on the Series B coupons. Since Blake’s experience is that 60% of the coupons will be redeemed, $120,000 face value of Series B coupons are expected to be redeemed (60% × $200,000). Additionally, $12,000 is expected to be paid to retailers for handling ($120,000 × 10%). Thus, an accrued liability of $91,500 is required ($132,000 expected total payments – $40,500 payments to date).
C is incorrect. Two separate series of coupons were mailed to consumers during year 1. The first series expired on 6/30/Y1 and the problem indicated that Blake honors requests for coupon redemption by retailers only up to 3 months after the consumer expiration date. Therefore, no liability should be accrued for the Series A coupons. Payments of $40,500 have been made to retailers on the Series B coupons which expired on 12/31/Y1. To find the 12/31/Y1 liability, the $40,500 payments must be compared with the total expected payments to be made on the Series B coupons. Since Blake’s experience is that 60% of the coupons will be redeemed, $120,000 face value of Series B coupons are expected to be redeemed (60% × $200,000). Additionally, $12,000 is expected to be paid to retailers for handling ($120,000 × 10%). Thus, an accrued liability of $91,500 is required ($132,000 expected total payments – $40,500 payments to date).
D is incorrect. Two separate series of coupons were mailed to consumers during year 1. The first series expired on 6/30/Y1 and the problem indicated that Blake honors requests for coupon redemption by retailers only up to 3 months after the consumer expiration date. Therefore, no liability should be accrued for the Series A coupons. Payments of $40,500 have been made to retailers on the Series B coupons which expired on 12/31/Y1. To find the 12/31/Y1 liability, the $40,500 payments must be compared with the total expected payments to be made on the Series B coupons. Since Blake’s experience is that 60% of the coupons will be redeemed, $120,000 face value of Series B coupons are expected to be redeemed (60% × $200,000). Additionally, $12,000 is expected to be paid to retailers for handling ($120,000 × 10%). Thus, an accrued liability of $91,500 is required ($132,000 expected total payments – $40,500 payments to date).
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