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What the estimated liability for premiums at december

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Wig Co. includes one coupon in each piece of wig it sells. In return for eight coupons, customers receive a cap. The cap cost Wig Co. P20.00 each. Wig Co. estimates that 40 percent of the coupons will be redeemed. Data for 2020 and 2021 are as follows:

                                                    2020                  2021

Pieces of wigs sold            5,000                   6,000
Selling price of wigs              P300                  P300
Caps purchased                     180                 220
Selling price of caps              P200                 P200
Coupons redeemed                 1200              1400

  • Liabilities accrued in the previous year will be redeemed in the immediate subsequent period. Likewise, the company uses the perpetual inventory method.

Problem 1: The total profit in 2020

Problem 2: The estimated liability for premiums at December 31, 2020

Problem 3: The estimated liability for premiums at December 31, 2021

Reference no: EM132737652

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