Reader's Digest Ran a Sweepstakes in Which Prizes Were Listed

question 9

Essay

Reader's Digest ran a sweepstakes in which prizes were listed along with chances of winning: $1,000,000 (1 chance in 90,000,000), $100,000 (1 chance in 110,000,000), $25,000 (1 chance in 110,000,000), $5,000 (1 chance in 36,667,000), and $2,500 (1 chance in 27,500,000). Assuming that there is no cost of entering the sweepstakes, find the expected value of the amount won for one entry. If the cost of entering the sweepstakes is the cost of a postage stamp, is it worth entering the contest?

---

Definitions:

Accounts Payable

Liability accounts representing the amounts owed by a company to its suppliers or creditors for goods and services received.

General Journal

A journal used in accounting that records all day-to-day financial transactions in chronological order.

Unearned Legal Fees Revenue

Revenue recognized for legal services not yet provided; it is recorded as a liability until the service is delivered.

General Journal

A foundational accounting record where transactions are recorded in chronological order before being posted to specific accounts in the general ledger.