Tom Thumb Inc. distributes to consumers coupons which may be presen ted (on or b
ID: 2533615 • Letter: T
Question
Tom Thumb Inc. distributes to consumers coupons which may be presen
ted (on or before a stated expiration date) to grocers for discounts on certain Tom Thumb products. The grocers are
reimbursed when they send the coupons to Tom Thumb. In Tom Thumb's experience, 50% of
such coupons are redeemed, and generally one month elapses between the date a grocer receives
a coupon from a consumer and the date Tom Thumb receives it. During 2010, Tom Thumb
issued two separate series of coupons as follows:
Consumer Amount Disbursed
Issued On Total Value Expiration Date as of 12/31/10
1/1/10 $375,000 6/30/10 $177,000
7/1/10 540,000 12/31/10 225,000
The only journal entries to date recorded debits to coupon expense and credits to cash of
$536,000. The December 31, 2010 balance sheet should include a liability for unredeemed
coupons of
a. $45,000
b.$270,000
c. $93,000
d. $0
Explanation / Answer
Answer
Option D : $ 0 (Zero)
Since all the coupons are expired as at 31 dec 2010, there shall be no liability for unredeemed coupons as at 31 Dec 2010.