Yummy rice offer an all start bowl in exchange for 4 coupons. Yummy rice estimates thar 25% of coupons will be redeemed. The bowl cosy Yummy rice $1.40 each. In 2016 5,960,000 coupons were distruted. By year end 924,000 coupons had been redeemed.

Required: Calculated the liability that yummy rice should report at December 31. 2016

liability

$198,100

Explanation:

Yummy rice estimates that 25 percent of the coupons will be redeemed

If 5,960,00 coupons were distributed 25 percent of these coupons which are

5,960,000 x 0.25 =  1,490,000 coupons should have been redeemed. However by the year end 924,000 coupons were redeemed, which means that 566,000 coupons are still outstanding and will be redeemed in future  

1,490,000 - 924,000 = 566,000

One bowl is provided is provided in exchange for 4 coupons, if there are 566,000 coupons outstanding, the bowls to be claimed should be 141,500

566,000/4 =  141,500

Since each bowl is worth $1.4, the liability to be reported should be

141,500 x 1.4 = $198,100

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