Yount Trading Stamp Co

Multiple Choice

Yount Trading Stamp Co.records stamp service revenue and provides for the cost of redemptions in the year stamps are sold to licensees.Yount's past experience indicates that only 80% of the stamps sold to licensees will be redeemed.Yount's liability for stamp redemptions was $7,500,000 at December 31, 2010.Additional information for 2011 is as follows: If all the stamps sold in 2011 were presented for redemption in 2011, the redemption cost would be $2,500,000.What amount should Yount report as a liability for stamp redemptions at December 31, 2011?

A) $9,100,000.
B) $6,600,000.
C) $6,100,000.
D) $4,100,000.