Question

Taylor product inc. distributed 100 million coupons in 2016. the coupons are redeemable for 30 cents each. taylor anticipates that 70% of the coupons will be redeemed. the coupons expire on december 31, 2017. there were 45 million coupons redeemed in 2016 and 30 million redeemed in 2017. what was general's coupon liability as of december 31, 2016?

Answer 1

Out of the 100 million coupons, 45 million were redeemed in 2016 at 30 cents each. Taylor expected to have 70% of them or 70 million redeemed by the expiry date on Dec. 31, 2017. On Dec. 31, 2016 they would only know of the 45 million redeemed so far and would depend on the projection for 2017 of the extra 25 million. So for the projected 25 million to redeem in 2017, the presumed liability of Taylor would be 25x$0.3=$7.5 million.