Dairy, Inc. offered an ice cream scoop in exchange for 8 labels of ice cream and $3.00. The ice cream scoops cost $7.00 each. Experience indicates that 45% of the coupons will be redeemed. Customers can redeem the coupons, receipts and cash through February 28, 2021. Dairy, Inc. sold 40,000 gallons of ice cream. 15,000 of the coupons were redeemed in 2020.

• What is the amount of premium expense to be recognized on the income statement for the year ended 2020?
• If all of the remaining ice cream scoops were issued in 2021, what is the amount of the premium expense to be recognized in 2021?
• What is the amount of the premium liability as of 12/31/20?

Please provide a detailed explanation. 

Answer rating: 100% (QA)

1 Premium expenses are those incurred by the company when it provides sales with the promotion that if they return the defined portion of the asset so... View the full answer