Current Attempt in Progress

In $20$X$1,$ Sanchez Pepper Sauces, Inc. ran a promotional campaign in which customers could collect points from hot sauce purchases to redeem for various rewards. For $100$ points, customers received a premium gift. At December $31,20$X$1,$ customers have accumulated a significant number of points, but only about $20\%$ have been redeemed. Based on past experience, Sanchez expects $30\%$ of the points to be redeemed. How should Sanchez account for the costs associated with the unredeemed points in their $201$ financial statements?

Report an expense for the total cost of gifts purchased and a liability for the cost of gifts corresponding to $30\%$ of the points accumulated.

Report an expense for the cost of gifts corresponding to $30\%$ of the points accumulated and a liability for the cost of gifts corresponding to $10\%$ of points accumulated and expected to be redeemed.

Report an expense and a liability for the total cost of gifts corresponding to $80\%$ of the points accumulated.

Report an expense for the cost of giffss for the $20\%$ of points redeemed and disclose an estimate of the total costs of gifts for points accumulated and expected to be redeemed.