Happy Coffee Inc. started a special promotion on Jan 1, 2020 whereby they provide cards to...

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Happy Coffee Inc. started a special promotion on Jan 1, 2020 whereby they provide cards to customers and that when they buy 5 coffees they receive one coffee free. A customer pays $6 for a coffee. It is estimated that only 70% of customers will redeem the free coffee. 10,000 coffees were sold in 2020 under this program. Customers redeemed 420 free coffees in 2020 and the rest are expected to be redeemed in 2021 (original redemption rate estimate still valid). It costs Happy $1.20 to provide a coffee to a customer. Required: Show your calculations a) What would the liability be at Dec 31, 2020 for the unredeemed coffees under this promotion assuming the revenue approach is used to value the liability and the free coffees are a separate performance obligation? b) If INSTEAD, the expense approach was used to value the obligation (as the free coffees were determined not to be a separate performance obligation), what would the liability be at Dec 31, 2020 instead? Happy Coffee Inc. started a special promotion on Jan 1, 2020 whereby they provide cards to customers and that when they buy 5 coffees they receive one coffee free. A customer pays $6 for a coffee. It is estimated that only 70% of customers will redeem the free coffee. 10,000 coffees were sold in 2020 under this program. Customers redeemed 420 free coffees in 2020 and the rest are expected to be redeemed in 2021 (original redemption rate estimate still valid). It costs Happy $1.20 to provide a coffee to a customer. Required: Show your calculations a) What would the liability be at Dec 31, 2020 for the unredeemed coffees under this promotion assuming the revenue approach is used to value the liability and the free coffees are a separate performance obligation? b) If INSTEAD, the expense approach was used to value the obligation (as the free coffees were determined not to be a separate performance obligation), what would the liability be at Dec 31, 2020 instead?

Answer rating: 100% (QA)

SOLUTION a To calculate the liability for the unredeemed coffees using the revenue approach we need ... View the full answer