Hairston stamp company records stamp service revenue, Ask an Expert

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Hairston Stamp Company records stamp service revenue andprovides for the cost of redemptions in the year stamps are sold tolicensees. Hairston's past experience indicates that only 80% ofthe stamps sold to licensees will be redeemed. Hairston's liabilityfor stamp redemptions was $13,000,000 at December 31, 2006.Additional information for 2007 is as follows. Stamp service revenue from stamps sold to licensees$9,500,000 Cost of redemptions (stamps sold prior to 1/1/07)6,000,000

If all the stamps sold in 2007 were presented for redemptionin 2008, the redemption cost would be $5,200,000. What amountshould Hairston report as a liability for stamp redemptions atDecember 31, 2007?

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