Premium Liability

Problem 1-1
In an effort to increase sales, Mill Company Inaugurated a sales promotional Campaign on June
30, 2016. The entity placed a coupon Redeemable for a Premium each package of cereal sold.
Each premium Cost P20 and 5 Coupons must be presented by a customer to receive a premium.
The entity estimated that only 60% of the coupons issued would be redeemed. For the six
months ended December 31, 2016, the following information is available:

Package of cereal sold 160,000

Premium purchase 12,000
Coupons redeemed 40,000

1. What is the premium expense for 2016?

a. 640,000
b. 384,000
c. 240,000
d. 160,000

2. What is the estimated liability for premiums on December 31, 2016?

a. 160,000
b. 224,000
c. 288,000
d. 384,000

Problem 1-2
During the year, Day Company Sold 500,000 boxes of cake mix under a new sales promotional
program. Each box contained one coupon, which entitled the customer to a baking pan upon
remittance of P 40.
The entity paid P50 per pan and P5 for handling and shipping and estimated that 80% of the
coupons would be redeemed, even though only 300,000 coupons had been processed during
the year.

1. What is the premium expense for the current year?

a. 6,000,000
b. 7,500,000
c. 4,500,000
d. 2,000,000

2. What amounts should be reported as liability for unredeemed coupons at year-end?

a. 1,000,000
b. 1,500,000
c. 3,000,000
d. 5,000,000
Problem 1-3
In package of the products, Curran Company included coupons that may be presented at retail
stores to obtain discounts on other Curran products.
Retailers were reimbursed for the face amount of coupons redeemed plus 10% of that amount
for handling Costs.
The entity honoured requests for coupon redemption by retailers up to three months after the
consumer expiration date.
The entity estimated that 70% of all coupons issued would ultimately be redeemed. The
consumer expiration date is December 31, 2016.
The total face amount of coupons issued was P600, 000 and the total payments to retailers
during 2016 amounted to P220, 000.

1. What is the premium expense for 2016?

a. 600,000
b. 180,000
c. 462,000
d. 198,000

2. What amount should be reported as liability for unredeemed coupons on

December 31, 2016?
a. 308,000
b. 200,000
c. 242,000
d. 0

Problem 1-4
Blake Company mailed coupons to consumers which may be presented at a stated expiration
date at retail food stores to obtain discounts on certain Blake products.
Retailers were reimbursed for the face value of coupons redeemed plus 10% of coupon face
value as compensation for handling cost.
The entity honored request for coupon redemption by retailers received up to three months
after the expiration date. Based on past experience, 60% of the coupons issued ultimately are
redeemed.
Information with respect to the two separate series of coupons issued during 2016 is as follows:
Series A Series B
Consumer expiration date June 30, 2016 December 31, 2016
Total Face value of coupon issued 1000,000 2,000,000
Total payments to retailers on
December 31, 2016 605,000 405,000

What amount should be reported as liability for unredeemed coupons on December 31, 22016?
a. 970,000
b. 915,000
 c. 795,000
d. 0

Problem 1-5
Case Cereal Company distributed coupons to promote new products. On October 1, 2016, the
entity mailed 100,000 coupons for P45 off each box of cereal purchased.
The entity expected 12,000 of these coupons to be redeemed before the December 31, 2016
expiration date.
It takes 30 days from the redemption date for the entity to receive the coupons from the
retailers. The entity reimbursed the retailers an additional P5 for each coupon redeemed.
On December 31, 2016 the entity had paid retailers P250, 000 related to theses coupons and
had 5,000 coupons on hand that had not been processed for payment.

What amount should be reported as liability for coupons on December 31, 2016?
a. 350,000
b. 290,000
c. 250,000
d. 225,000

Problem 1-6
In December 2016, Milan Company began including on coupon in each package of candy that it
sells and offering a toy in exchange for P50 and five coupons. The toy cost P80 each.
Eventually, 60% of the coupons will be redeemed. During December the entity sold 110,000
packages of candy and no coupons were redeemed.

On December 31, 2016, what amount should be reported as estimated liability for coupons?
a. 198,000
b. 396,000
c. 528,000
d. 660,000

Problem 1-7
Baker Company sold consumer products that are packaged in boxes. The entity offered an
unbreakable glass in exchange for 2 box tops and P50 as a promotion during the current year.
The cost of the glass was P200. The entity estimated at the end the year that it would be
probable that 50% of the box tops will be redeemed.
The entity sold 100,000 boxes of the product during the current year and 40,000 box tops were
redeemed during the year.

What amount should be reported as estimated liability at year-end?

a. 3,000,000
b. 1,500,000
c. 750,000
d. 0
Problem 1-8
Topsy Company started a new promotional program. For every 10 box tops returned,
customers receive a basketball.
The entity estimated that only 60% of the box tops reaching the market would be redeemed.
Units Amount
Sales of product 100,000 30,000,000
Basketballs Purchased 5,500 4,125,000
Basketballs distributed 4,000

1. What is the premium expense for the year?

a. 4,500,000
b. 1,500,000
c. 4,125,000
d. 7,500,000

2. What is the amount of year-end estimated liability associated with this promotion?
a. 4,125,000
b. 1,500,000
c. 3,000,000
d. 4,500,000