Premium Liability

Question 1

The cost of customer premium offer should be charged to expense

a. When the related product is sold.
b. When the premum offer expires.
c. Over the life cycle of the product.
d. When the premium is claimed.

Answer 1

a. When the related product is sold.

Question 2

The accounting concept that requires recognition of a liability for customer premium offer is

a. Time period
b. Prudence
C. Historical cost
d. Matching principle

Answer 2

d. Matching principle

Question 3

Accounting for cost of incentive program for frequent customer purchases involves

a. Recording an expense and a liability each period.
b. Recording a liability and a reduction of revenue.
c. Recording an expense and an asset reduction.
d. Recording an expense and revenue each period.

Answer 3

a. Recording an expense and a liability each period.

Question 4

Accounting for cost of customer incentive program

a. Requires probability estimation.
b. Follows the matching principle.
c. Is a loss contingency situation.
d. All of these are correct.

Answer 4

d. All of these are correct.

Question 5

Providing a monetary rebate program

a. Is accounted for similarly to a premium offer
b. Creates an expense for the seller in the period of sale.
c. Creates a liability for the seller at the time of sale.
d. Is normally not recognized

Answer 5

c. Creates a liability for the seller at the time of sale.

Question 6

What is the accounting for the transaction price of a contract of sale with customer coupons for free product, discount or rebate?

a. Entirely as product sales revenue
b. Allocated to customer options equal to stand-alone selling and the balance to product sales
c. Allocated between product sales revenue and coupons based on stand-alone selling price
d. Entirely as coupon revenue

Answer 6

c. Allocated between product sales revenue and coupons based on stand-alone selling price

Question 7

What is the stand-alone selling price of free product coupons?

a. Nothing
b. Fair value less cost of disposal
c. Selling price of free product
d. Selling price of free pioduct adjusted for expected redemption

Answer 7

d. Selling price of free pioduct adjusted for expected redemption

Question 8

What is the stand-alone selling price of discount coupons?

a. Discount on customer purchases during the year
b. Discount on customer future purchases
c. Discount on customer purchases during the year adjusted by expected redemption
d. Discount on customer future purchases adjusted by expected redemption

Answer 8

d. Discount on customer future purchases adjusted by expected redemption

Question 9

What is the stand-alone selling price of rebate coupons?

a. Discount on products sold during the current year
b. Discount on products sold during the current year adjusted by expected redemption
c. Cost of products sold
d. Fair value of rebate coupons

Answer 9

b. Discount on products sold during the current year adjusted by expected redemption

Question 10

The nonredemption of gift certificates is called

a. Breakage
b. Forfeiture
c. Rebate
d. Waiver

Answer 10

a. Breakage