ADJUSTMENTS FOR REFUND COUPONS. Cal-Lite Products, Inc., manufac- tures a line of food products that appeals to persons interested in weight loss. To stimulate sales, Cal-Lite includes cash refund coupons in many of its products. Cal-Lite issues the purchaser a check when the coupon is returned to the company, which may be many months after the product is sold to stores and distributors. In addition, a significant number of coupons issued is never returned. As cash distributions are made to customers, they are recorded in an expense account.

REQUIRED:

1. Explain the conceptual basis for the determination of refund expense in each year.

Describe the information and calculations required to estimate the amount of expense for each year.

_ 2. Describe the year-end adjustment required at the end of the first year of the program’s existence.

3. Describe the adjustment at the end of the second year of the program’s existence.