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Question 5

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Jackpine Trading Stamp Co. records trading stamp revenue and provides for the cost of redemptions in the year stamps are sold to licensees. Jackpine's past experience indicates that only 70% of the stamps sold to licensees will be redeemed. Jackpine's liability for stamp redemptions was $2,600,000 at December 31, 20x6. Additional information for 20x7 is as follows:

Stamp revenue from stamps sold to licensees.......................... $2,000,000

Cost of redemption's in x7 (for stamps sold prior to 1/1/x7)..... 1,000,000

If all the stamps sold in 20x7 were presented for redemption, the redemption cost would be $900,000. What amount should Jackpine report as a liability for stamp redemptions at December 31, 20x7?

	$3,370,000
	$2,230,000
	$2,500,000
	$1,600,000