Detailed Answer
(a) Case expects 120,000 coupons to be redeemed at a
total cost of $.50 per coupon ($.45 + $.05). Therefore, total
expected redemptions are $60,000 (120,000 × $.50). By
12/31/Y2, $25,000 has been paid on coupon redemptions, so a
liability of $35,000 must be established ($60,000 −$25,000).
Note that this liability would include both payments due for the
50,000 coupons on hand, and payments due on coupons to be
received within the first thirty days after the expiration date.