Question

On 1/1/16, Padres Co began including two coupons in each box of baseball food it sells. In exchange for 15 coupons and $5, customers will receive an official replica baseball stadium of their favorite team. Each stadium costs Padres Co $25. Padres Co estimates that 35% of the coupons will not be redeemed. Events relating to the coupon promotion during 2017 and 2018 are as follows: YEAR Boxes of baseball food sold Replica stadiums purchased Actual number of coupons redeemed 2017 915,000 80,000 867,000 2018 1,170,000 90,000 1,494,000 At 12/31/16, the balance of estimated premium liability was $346,000 and the dollar balance of the premium inventory was $565,000.

** REQUIRED: 1) Determine the amount of the following: a) premium expense FYE 12/31/17. 1,586,000 b) premium expense FYE 12/31/18. 2,028,000 c) balance of the estimated premium liability at 12/31/18. 812,000 d) dollar balance of the premium inventory at 12/31/17. 1,120,000 e) number of premiums (figurines) on hand at 12/31/18. 35,200 ​Here are the correct answers, can you please explain how they were computed.

Answer 1

		Amount	Premium expense	premium liability	Premium inventory
	Opening balance			346,000	565,000
	2017
a	Baseball food sold	915,000
b	Coupons attached to them	1,830,000
c	Estimated redemption 65%	1,189,500
d= c*15/20	Estimated liability	1,586,000	1,586,000	1,586,000
	Stadiums purchased				2,000,000
e	Coupons redeemed	867,000
f= e/15	stadiums given for coupons	57,800
	Cost of stadiums			-1,156,000	-1,445,000
Balances			1,586,000	776,000	1,120,000
2018
a	Baseball food sold	1,170,000
b	Coupons attached to them	2,340,000
c	Estimated redemption 65%	1,521,000
d= c*15/20	Estimated liability	2,028,000	2,028,000	2,028,000
	Stadiums purchased				2,250,000
e	Coupons redeemed	1,494,000
f= e/15	stadiums given for coupons	99,600
	Cost of stadiums			-1,992,000	-2,490,000
Balances			2,028,000	812,000	880,000

Figurines at hand in 2018 = 880000/25 = 35200