Total Expected Value

Suggested solution:
Amount Probability % Chances % Expected Value

Total expected value (Weighted probabilities)

Add: Risk adjustment

Adjusted expected value (Undiscounted cash flows)

Multiply: PVF
Provision,

Estimated Liabilities
Suggested solution:
Boxes of soap sold, 2020
Dividend by no. of coupons for redemption
Total coupons to be redeemed
Multiplied by estimated percentage of redemption
Estimated coupons to be redeemed
Less: Actual coupons redeemed
Equivalent coupons redeemed
Dividend by no. of coupons for redemption
Unredeemed portion, December 31, 2020
Net cost per unit of premium
Towel cost
Distribution cost
Customer remittance
Estimated premium liability, December 31, 2020
Equivalent coupons redeemed
Net cost per unit of premium
Premium expense
Quantity Actual Unit Cost Total Amount
Towels purchased
Redeemed premium
Premium inventory

Related journal entries:

Account Debit Credit
Premium inventory
Cash
To record purchase of premiums.
Premium expense
Estimated premium liability
To record estimated premium liability.
Cash
Estimated premium liability
Premium inventory
To record redemption of premiums.

Unredeemed portion, December 31, 2020

Estimated coupons to be redeemed
Boxes of soap sold, 2021
Dividend by no. of coupons for redemption
Total coupons to be redeemed
Multiplied by estimated percentage
Less: Equivalent coupons redeemed
Divident by no. of coupons for redemption
Unredeemed portion, December 31, 2021
Estimated premium liability, December 31, 2021
Equivalent coupons redeemed
Net cost per unit of premium
Premium expense

Quantity Actual Unit Cost Total Amount

Beginning balance
Towels purchased, 2021
Redeemed premium

Related journal entries:

Account Debit Credit
Premium inventory
Cash
To record purchase of premiums.
Premium expense
Estimated premium liability
To record estimated premium liability.
Cash
Estimated premium liability
Premium inventory
To record redemption of premiums.
Warranty
Suggested solution:
Sales - 2020
Warranty percentage - total
Warranty expense, 2020
Less: Actual warranty cost - 2020
Estimated warranty liability, December 31, 2020

Related journal entries:

Date Account Debit Credit
Cash
Sales revenue
To record sales for 2020.
Warranty expense
Estimated warranty liability
To record estimated warranty in 2020.
December 31, 2020 Estimated warranty liability
Cash
To record actual warranty repairs in 2020.

Estimated warranty liability, January 1, 2021

Estimated warranty liability for 2021 sales:
Sales - 2021
Warranty percentage - total
Warranty expense, 2021
Less: actual warranty cost - 2021
Estimated warranty liability, December 31, 2021

Related journal entries:

Date Account Debit Credit
Cash
Sales revenue
To record sales for 2021.
Warranty expense
Estimated warranty liability
To record estimated warranty in 2021.
December 31, 2021 Estimated warranty liability
Cash
To record actual warranty repairs in 2021.

Deferred Revenue
Suggested solution:
Basic Ratio Transaction price
Product sales
Points - stand alone selling price
Total

Actual redemption, 2020

Awards credit issued
Expected rate
Ratio
Multiplied by Points - stand alone selling price
Revenue from points, 2020

Related journal entries:

Account Debit Credit
Cash
Sales revenue
Unearned revenue - points
To record sales for 2020.
Unearned revenue - points
Revenue from points
To record revenue from points in 2020.

Actual redemption, cumulative (2020 and 2021)

Awards credit issued
Expected rate
Ratio
Multiplied by Points - stand alone selling price
Revenue from points, cumulative
Less: Revenue from points, 2020
Revenue from points, 2021

Account Debit Credit

Unearned revenue - points
Revenue from points
To record revenue from points in 2021.