XYZ Co. includes one coupon in each bag of cat food it sells. In return for 4 coupons, customers receive a toy that the company purchases for £1.20 each. XYZ's experience indicates that 70 percent of the coupons will be redeemed. During 2018, 100,000 bags of cat food were sold, 12,000 toys were purchased, and 40,000 coupons were redeemed. During 2019, 120,000 bags of cat food were sold, 16,000 toys were purchased, and 60,000 coupons were redeemed. Instructions (show computations) Determine the premium expense to be reported in the income statement and the premium liability on the statement of financial position for 2018 and 2019.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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XYZ Co. includes one coupon in each bag of cat food it sells. In return for 4 coupons, customers receive a toy that the company purchases for £1.20 each. XYZ's experience indicates that
70 percent of the coupons will be redeemed. During 2018, 100,000 bags of cat food were sold, 12,000 toys were purchased, and 40,000 coupons were redeemed. During 2019, 120,000
bags of cat food were sold, 16,000 toys were purchased, and 60,000 coupons were redeemed.
Instructions (show computations)
Determine the premium expense to be reported in the income statement and the premium liability on the statement of financial position for 2018 and 2019.
Transcribed Image Text:XYZ Co. includes one coupon in each bag of cat food it sells. In return for 4 coupons, customers receive a toy that the company purchases for £1.20 each. XYZ's experience indicates that 70 percent of the coupons will be redeemed. During 2018, 100,000 bags of cat food were sold, 12,000 toys were purchased, and 40,000 coupons were redeemed. During 2019, 120,000 bags of cat food were sold, 16,000 toys were purchased, and 60,000 coupons were redeemed. Instructions (show computations) Determine the premium expense to be reported in the income statement and the premium liability on the statement of financial position for 2018 and 2019.
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