CHAPTER 1 PREMIUM LIABILITY Problem I-1 (AICPA Adapted) Inan ffor to increase ales, Mill Company inaugurated a ales ‘promotional campaign on June 30,2019, The entity placed acoupon Redeemable fora premium incach package of cereal old. ‘Each premium cost P20 and five coupons must be presented by 2 ‘customer to receive a premium. The entity estimated tat only 09% ofthe coupons issued would be redeemed. For the six months ended December 31, 2019, the following information is available: Packages of cereal sold 16,000 Premium purchased 12000 ‘Covpons redeemed 40000 1, Whatisthe premium expense for 20197 om | Answer b Question 2 Answer b (160,000 60%) nese11-2 (AICPA Adapted) ale iii custome toa Problem 1-3 AICPA Adapted) In packages of the products, Curran Company included cou that may be presented at retail stores to obtain discounts on ther ‘Curran produc Retailers were reimbursed forthe face amount of coupons redeemed plus 10% ofthat amount for handling cos ‘The entity honored requests fr coupon redemption by retailers up to three months after the consumer expiration date ‘Theenity estimated hat 70% ofall coupons issued would ultimately bbe redeemed. The consumer expiration date is December 31,2019, ‘Thetotal face amount of coupons issued was P600,000 andthe total payments to retailers during 2019 amounted to P220,000, 1. What amount shouldbe reported a premium expense for 2019? a. 600,000 & 80.000 i) Sa _-onDecember 31,2019?Problem 1-5 (AICPA Adapted) Case Cereal Company distributed coupons to pro products. On October 1, 2019, the entity mailed 100,00 for P4S off each box of cereal pure ‘The entity expected 12,000 ofthese coupons tobe redeemed before the December 31,2019 expiration date Tttakes 30 days from the redemption date forthe entity to receive ‘the coupons from the retailers. The entity reimbursed the etuilers ‘an additional PS foreach coupon redeemed. ‘On December 31, 2019, the entity had paid retailers P250,000 ‘elated to theses coupons and had 5,000 coupons on hand that had ‘ot been processed for payment. ‘What amount should be reported as liability for coupons onare packaged inboxes, ortwoton costae Problem 1-7 (AICPA Adapted) ‘Topsy Company stated anew promotional program. For every 10 box ops retmed, customers eocve basketball ‘The entity estimate that only 60% ofthe box tops reaching the market ‘would be redeemed. Units Amount Sales of product 100,000 Basketballs purchased Basketballs distributed What amount shouldbe reported as premium expense forthe yea? a. 4,500,000 '. 1,500,000 4;125,000, > 7500,000 ‘What amount should be reported as year-end estimated lability associated wih this promotion? 4,125,000 '. 1,500,000Solution 1-8 Question 1 Answer d Cost of towel Remittance from customer Distribution cost [Net premium cost Coupons to be redeemed in 2019 (2,000,000 x 3 Coupons redeemed in 2019 Coupons outstanding ~ December 31, 2019 Premium expense for 2019 (600,000 10 x 45) Question 2 Answer d imate liability - 12/31/2019. (200,000// 10 45) tion 3 Answer e to be redeemed in 2020 (2,500,000 x 30%)Solution 1-9 Question | Answera Number of premiums distributed in 2019 Number of premiums to be distributed in 2020 ‘otal premiums in 2019 Premium expense for 2019 (25,000 x 40) 200,000 Question 2 Answer b Extimated liability ~ 12/31/2019 (5,000 x40) Question 3 Answer d Premiums distributed in 2020 Premiums tobe distributed in 2021,Problem 1-11 IAA) Ding the curent year, D under anew sales promotional program. Each belt cared one coupon ‘which entitled the customer toa P50 cash rebate “The entity estimated that 70% ofthe coupons willbe redeemed even ‘though only 35,000 coupons had been processed during the urrent yew. 1, Whatarnount ofrebate expense should be reported forthe current year? a. 4,000,000 '. 2,800,000 , 1,750,000 d, 250,000 2, What amount shoul be reported as rebate ibility for unredeemed ‘coupons at year-end? a. 1,750,000 1,050,000Solution 1-12 Question | Answer d Product sles Points granted during the yar (10,000 x 100) Tol Product sles (7,000.00 /8,00,000 x 7,00,000) Points (100,000 8,000,000 x 7,000,000) Total transaction price Product sales Revenue from points redeemed in 2019 {4,800/8,000x875,000) “Total revenue in 2019ds, participates in . nt forevery P1009 Problem 1-14 (IFRS) Alyanna Company operates a customer lo {rants program members loyalty points wie mount on purchases, Program members can redeem the points for uber purchase. The Points have no expiry date. tS ig Dring2019. he cusomer xe 600 pics. Manageent tha 100% of hese pina wilbe ees. The sunt alone ag price ofeach yal pot P20. “The sales during 2019 amounted to P6,800,000 based on stand-alone selling rice. ‘On December 31, 2019, 28,800 points have been redeemed in ‘exchange for purchases 12020, the management revised expectations and now expects 90% ‘ofthe points tobe redeemed. 12020, the entity redeemed 9,000 points J, What amount of the transaction price should be allocated otheProblem 1-15 (IFRS) Eka Company operates custome loyalty progam The entity grants Toyalty points for goods purchased. The loyalty point can be used by thecusiomersin exchange forgo often The pnts hve no expiry date Dring 2019, the ent issued 50,000 award credits nd expect hat olde eae al erene: teal Selling price ofthe award credits rane i reliably measured at 1,000 000. In 2019, teeny sol goods to customers fora fonsidcration of ?7,000,00 based on stand-alone sling rice. ‘The aard credits redeemed andthe total award reds expected to teredocmed each year ara llows Redeemed Expected to be redeemed 2019 15000 7380 2550 15000 ‘What s the revenue fom points for 2019? a. 328,125 >. 875,000 700,000 175,000Problem 1-3(AICPA Adapted) Inpeckages ofthe products, Curran Company included coupons Ahatmay be presented at retail stores to obtain discounts on other {Caran product. Retailers were reimbursed forthe face amount of coupons redeemed 18 aNd Shipping ang plus 10% ofthat amount forandling costs. “The entity honored request for coupon redemption by retailers up tothree months after the consumer expiration dat. ‘The entity estimated hat 70% ofall coupons issued would ultimately teredecmed. The consumer expzaton date is December 31,2019 “The total face amount of coupons issued was 600,000 and the total payments toretalrsdring 2019 amounted to P220,000. 1. What amount should be reported as premium expense for 2019? a. 600,000 +b, 180,000 462,000 4 198,000 P50 per 0 er pan and PS fr hanlin