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A cereal company issues coupons that can be exchanged for boxesof cereal. It issues...

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Accounting

A cereal company issues coupons that can be exchanged for boxesof cereal. It issues two million coupons that promise the retailerwho redeems the coupons $1 per coupon. The probability ofredemption of any one coupon is 10%. What is the amount of theliability that the company recognizes?

a.

$2,000

b.

$20,000

c.

$100,000

d.

$200,000

e.

$2,000,000

Answer & Explanation Solved by verified expert
4.3 Ratings (704 Votes)

Ans is d. $200,000

Explanation: No of coupon issued                  = 2,000,000

Value of 1 coupon                                         = x $1

Total Value of coupons                                 = $2,000,000

Multiplied by Probability of redemption         = x 10%

Amount of Liability                                      = $200,000

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In: AccountingA cereal company issues coupons that can be exchanged for boxesof cereal. It issues two...A cereal company issues coupons that can be exchanged for boxesof cereal. It issues two million coupons that promise the retailerwho redeems the coupons $1 per coupon. The probability ofredemption of any one coupon is 10%. What is the amount of theliability that the company recognizes?a.$2,000b.$20,000c.$100,000d.$200,000e.$2,000,000

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