Question
Hairston Rewards Inc. provides rewards services to licensees. Hairston records service revenue related to rewards (granted as reward vouchers, which can be redeemed at a
Hairston Rewards Inc. provides rewards services to licensees. Hairston records service revenue related to rewards (granted as reward vouchers, which can be redeemed at a variety of retailers) and recognizes the cost of redemptions in the year vouchers are sold to licensees. Hairstons past experience indicates that only 80% of the vouchers sold to licensees will be redeemed. Hairstons liability for stamp redemptions was $13,000,000 at December 31, 2024. Additional information for 2025 is as follows.
Service revenue from vouchers sold to licensees $9,500,000
Cost of redemptions (vouchers sold prior to 1/1/25) 6,000,000
If all the vouchers sold in 2025 were presented for redemption in 2026, the redemption cost would be $5,200,000. What amount should Hairston report as a liability for voucher redemptions at December 31, 2025?
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