What amount should itss report as a liability

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Question - In packages of its products, ITSS Inc. includes coupons that may be presented at retail stores to obtain discounts on other ITSS products. Retailers are reimbursed for the face amount of coupons redeemed plus 10% of that amount for handling costs. ITSS honours requests for coupon redemption by retailers up to three months after the consumer expiration date printed on the coupon. ITSS estimates that 60% of all coupons issued will eventually be redeemed. Information relating to coupons issued by ITSS during 2020 (the first year of the promotion) is as follows:

Consumer expiration date 12/31/20

Total face amount of coupons issued $944,000

Total payments to retailers as at 12/31/20 $389,400

Required -

(a) What amount should ITSS report as a liability for unredeemed coupons at December 31, 2020?

(b) What amount of premium expense should ITSS report on its 2020 income statement?

Reference no: EM133103866

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