In 2021, ABC Company issued 5,000 premiums coupons that can be redeemed for prizes. Each coupon if surrendered with 10 can be exchanged with a premium item. The company estimates that 50% of the premiums will be redeemed. ABC purchased 3,000 prizes at a cost of 30 each in anticipation of the premium redemption during the year, 1,000 premiums are redeemed. The entries in the books of ABC Company were: Debit to Premium expenses and credit to Cash at 90,000 (for the purchase of the premium items); Debit to Cash and Credit to Other Income at 10,000 (for the premium redemption). What is the correct amount of estimated liability that should be presented in the statement of financial position at year end?
In 2021, ABC Company issued 5,000 premiums coupons that can be redeemed for prizes. Each coupon if surrendered with 10 can be exchanged with a premium item. The company estimates that 50% of the premiums will be redeemed. ABC purchased 3,000 prizes at a cost of 30 each in anticipation of the premium redemption during the year, 1,000 premiums are redeemed. The entries in the books of ABC Company were: Debit to Premium expenses and credit to Cash at 90,000 (for the purchase of the premium items); Debit to Cash and Credit to Other Income at 10,000 (for the premium redemption). What is the correct amount of estimated liability that should be presented in the statement of financial position at year end?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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In 2021, ABC Company issued 5,000 premiums coupons that can be redeemed for prizes. Each coupon if surrendered with 10 can be exchanged with a premium item. The company estimates that 50% of the premiums will be redeemed. ABC purchased 3,000 prizes at a cost of 30 each in anticipation of the premium redemption during the year, 1,000 premiums are redeemed.
The entries in the books of ABC Company were:
Debit to Premium expenses and credit to Cash at 90,000 (for the purchase of the premium items);
Debit to Cash and Credit to Other Income at 10,000 (for the premium redemption).
What is the correct amount of estimated liability that should be presented in the
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