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What amount should run report as liability for premiums

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Problem 1: Rum Co. offers premiums as part of its sales promotion. Run's past experience indicates only 80% of its sales are redeemed for premiums. Rum Co.'s liability for premiums on December 31, 20x0 was $6,000,000. Run made total sales of $4,000,000 in 20x1 and distributed premiums costing $2,750,000. If all the sales in 20x1 were redeemed, the total cost of premiums would be $2,250,000. What amount should Run report as liability for premiums on December 31, 20x1?

a. 7,250,000

b. 5,500,000

c. 5,050,000

d. 3,250,000

Reference no: EM132907631

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