Question
In: Accounting
Waterway Industries includes one coupon in each bag of dog food it sells. In return for...
Waterway Industries includes one coupon in each bag of dog food
it sells. In return for eight coupons, customers receive a leash.
The leashes cost Waterway $3 each. Waterway estimates that 50
percent of the coupons will be redeemed. Data for 2020 and 2021 are
as follows:
| 2020 | 2021 | |||
| Bags of dog food sold | 490000 | 590000 | ||
| Leashes purchased | 20000 | 22000 | ||
| Coupons redeemed | 110000 | 150000 |
The premium liability at December 31, 2020 is
$44375.
$50625.
$66375.
$54375.
Solutions
Expert Solution
The premium liability at December 31, 2020 is calculated
as follows:
The number of coupon to be redeemed is 50 % of dog food sold
The number of coupons to be redeemed = 490,000 * 50%
= 245,000 coupons
But, actual number of coupons are redeemed = 110,000 coupons
Therefore, the unclaimed coupons for 2020 = 245,000 coupons - 110,000 coupons
= 135,000 coupons
Number of lashes = 135,000 coupons / 8 coupons
= 16,875 lashes
Therefore, premium liability at December 31, 2020 = Number of lashes * Cost for each leash
= 16,875 lashes * $3
= $50,625
The premium liability at December 31, 2020 is $50,625
So correct answer is option (2) or $50,625
ekkarill92 answered 1 year agoRelated Solutions
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