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Problem 1 - PREMIUMS

In the packages of its products, ALONDRA, INC. includes coupons that may be presented at retail stores
to obtain discounts on other Alondra products. Retailers are reimbursed for the face amount of coupons
redeemed plus 10% of that amount for handling costs. Alondra honors requests for coupon redemption by
retailers up to 3 months after the consumer expiration date. Alondra estimates that 60% of all coupons
issued will ultimately be redeemed. Information relating to coupons issued by Alondra during 2007 is as

Consumer expiration date 12/31/07

Total payments to retailers as of 12/31/07 165,000
Liability for unredeemed coupons as of 12/31/07 99,000

1. The total face amount of coupons issued in 2007 is – 400K

2. Coupons expense at year-end is -264K
3. Estimated liability for unredeemed coupons is – 99K

Problem 2 – PREMIUMS
To increase sales, Sonic Company inaugurated a promotional campaign on June 30, 2005. Sonic placed a
coupon redeemable for a premium in each package of product sold. Each premium costs P100. A premium
is offered to customers who send in 5 coupons and a remittance of P30. The distribution cost per premium
is P20. Sonic estimated that only 60% of the coupons issued will be redeemed. For the six months ended
December 31, 2005, the following is available:

Packages of product sold 160,000

Premiums purchased 16,000
Coupons redeemed 64,000

What is the estimated liability for coupons as of December 31, 2005?

Problem 3 – PREMIUMS

Beginning 2010, Alabat Company began marketing a new beer called “Red Colt’. To help promote the
product, the management is offering a special beer mug to each customer for every 20 specially marked
bottle caps of Red colt. Alabat estimates that out of the 300,000 bottles of Red Colt sold during 2010, only
50% of the marked bottle caps will be redeemed. For the year 2010, 8,000 mugs were ordered by the
company at a total cost of 360,000. A total of 4,500 mugs were already distributed to customers. What is
the amount of the liability that Alabat company should report on December 31, 2010 statement of financial
position? 135,000
Problem 4 – PREMIUMS

Pukaki Company sold 700,000 boxes of puto mix under a new sales promotional program. Each box
contains one coupon, which if submitted with P40, entitles the customer to a kitchen knife. Pukaki pays 60
per knife and 5 handling an shipping. Pukaki estimates that 70% of the coupons will be redeemed even
though only 250,000 coupons had been processed during 2014.

How much should Pukaki report as liability for unearned coupons at December 31, 2014? 6,000,000