Jackpine Trading Stamp Co

Multiple Choice

Jackpine Trading Stamp Co. records trading stamp revenue and provides for the cost of redemptions in the year stamps are sold. Jackpine's past experience indicates that only 75% of the stamps sold will be redeemed. Jackpine's liability for stamp redemptions was $ 3,000,000 at December 31, 2019. Additional information for 2020 is as follows: If all the stamps sold in 2020 were presented for redemption in 2020, the redemption cost would be $ 1,000,000. What amount should Jackpine report as a liability for stamp redemptions at December 31, 2020?

A) $ 3,750,000
B) $ 2,650,000
C) $ 2,400,000
D) $ 1,650,000