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What amount should jackpine report as a liability

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Jackpine Trading Stamp Co. records trading stamp revenue and provides for the cost of redemptions in the year stamps are sold. Jackpine's past experience indicates that only 75% of the stamps sold will be redeemed. Jackpine's liability for stamp redemptions was $ 3,000,000 at December 31, 2019. Additional information for 2020 is as follows:

Stamp revenue from stamps sold to licensees                     $ 2,000,000

Cost of redemptions for stamps sold prior to 2020              1,350,000

Question problem 1: If all the stamps sold in 2020 were presented for redemption in 2020, the redemption cost would be $ 1,000,000. What amount should Jackpine report as a liability for stamp redemptions at December 31, 2020?

a) $ 3,750,000

b) $ 2,650,000

c) $ 2,400,000

d) $ 1,650,000

Reference no: EM132467407

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