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1. In packages of its products, Burnitz Inc. includes coupons that may be presented at retail stores to obtain discounts on other Burnitz products. Retailers are reimbursed for the face amount of coupons redeemed plus 10% of that amount for handling costs. Burnitz honors requests for coupon redemption by retailers up to 3 months after the consumer expiration date. Burnitz estimates that 60% of all coupons issued will ultimately be redeemed. Information relating to coupons issued by Burnitz during 2014 is as follows.

Consumer expiration date		12/31/14
Total face amount of coupons issued		$941,700
Total payments to retailers as of 12/31/14		370,500

What amount should Burnitz report as a liability for unredeemed coupons at December 31, 2014?

2. Roland Company sold 601,400 boxes of pie mix under a new sales promotional program. Each box contains one coupon, which when submitted with $4.40, entitles the customer to a baking pan. Roland pays $6.40 per pan and $0.90 for handling and shipping. Roland estimates that 70% of the coupons will be redeemed, even though only 298,400 coupons had been processed during 2014. What amount should Roland report as a liability for unredeemed coupons at December 31, 2014?

Liability for unredeemed coupons at December 31, 2014

3. During 2014, Salt-n-Pepa Inc. became involved in a tax dispute with the IRS. Salt-n-Pepas attorneys have indicated that they believe it is probable that Salt-n-Pepa will lose this dispute. They also believe that Salt-n-Pepa will have to pay the IRS between $900,000 and $1,400,000. After the 2014 financial statements were issued, the case was settled with the IRS for $1,200,000. What amount, if any, should be reported as a liability for this contingency as of December 31, 2014?

4.On October 1, 2014, Alan Jackson Chemical was identified as a potentially responsible party by the Environmental Protection Agency. Jacksons management along with its counsel have concluded that it is probable that Jackson will be responsible for damages, and a reasonable estimate of these damages is $5,000,000. Jacksons insurance policy of $9,000,000 has a deductible clause of $500,000. How should Alan Jackson Chemical report this information in its financial statements at December 31, 2014?

5. Melissa Etheridge Inc. had a manufacturing plant in Sudan, which was destroyed in the civil war. It is not certain who will compensate Etheridge for this destruction, but Etheridge has been assured by governmental officials that it will receive a definite amount for this plant. The amount of the compensation will be less than the fair value of the plant, but more than its book value. How should the contingency be reported in the financial statements of Etheridge Inc.?

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