As part of a promotion campaign, Funzy Cereal includes one coupon in each issue of various national magazines and offers a toy car in exchange for $1.00 and three coupons. The cars cost Funzy $1.50 each. Experience indicates that 4% of the coupons eventually will be redeemed. During the last month of 2018, the first month of the offer, 12 million coupons were distributed and 240,000 million of the coupons were redeemed. What amount should Funzy report as a promotional expense for coupons on its December 31, 2018, income statement?
A) $0.
B) $40,000.
C) $80,000.
D) $120,000.

Question

Quizplus · Accepted Answer

[(12,000,000 × 4%)/3] × ($1.50 - $1.00) = $80,000

As Part of a Promotion Campaign, Funzy Cereal Includes One