Case Cereal Co. frequently distributes coupons to promote
new products. On October 1, year 2, Case mailed 1,000,000
coupons for $.45 off each box of cereal purchased. Case expects
120,000 of these coupons to be redeemed before the December
31, year 2, expiration date. It takes thirty days from the redemption
date for Case to receive the coupons from the retailers.
Case reimburses the retailers an additional $.05 for each coupon
redeemed. As of December 31, year 2, Case had paid retailers
$25,000 related to these coupons and had 50,000 coupons on
hand that had not been processed for payment. What amount
should Case report as a liability for coupons in its December 31,
year 2 balance sheet?