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Flipper Trading Stamp Co. records stamp service revenue and provides for the cost of redemptions...

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Accounting

Flipper Trading Stamp Co. records stamp service revenue and provides for the cost of redemptions in the year stamps are sold to licensees. Flipper's past experience indicates that only 80% of the stamps sold to licensees will be redeemed. Flipper's liability for stamp redemptions was $6,000,000 at December 31, year 1. Additional information for year 2 is as follows: >> Stamp service revenue from stamps sold to licensees $4,000,000 >> Cost of redemptions (stamps sold prior to 1/1/Y2) 2,750,000 If all the stamps sold in year 2 were presented for redemption in year 3, the redemption cost would be $2,520,000. What amount should Flipper report as a liability for stamp redemptions at December 31, year 2?

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