Liability for Premiums As a promotion for its new line of Zappo nonalkaline batteries, American Battery Company offered a free glow-in-the-dark key holder. Customers must submit 4 special proof-of-purchase seals from packages of Zappo batteries and pay 50 cents for shipping and handling. American Battery sold 600,000 packages of batteries with the special proof-of-purchase seals during the current period and believes 35 percent of the proof-of-purchase seals will be returned for the free prize. The cost of purchasing the key holders and shipping them to customers is

$1.30 per unit. A total of 36,000 key holders were shipped to customers in the current period.

a. What amount of premium expense should American Battery record for the current period?

b. How many proofs of purchase are likely to be received in the following period?

c. What amount of liability for premiums should American Battery report at the end of the period?