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Chapter 13: 15BE (page 658)

Wynn Company offers a set of building blocks to customers who send in 3 UPC codes from Wynn cereal, along with 50垄. The block sets cost Wynn $1.10 each to purchase and 60垄 each to mail to customers. During 2017, Wynn sold 1,200,000 boxes of cereal. The company expects 30% of the UPC codes to be sent in. During 2017, 120,000 UPC codes were redeemed. Prepare Wynn鈥檚 December 31, 2017, adjusting entry.

Short Answer

Expert verified

Premium expense will be debited and Premium liability will be credited by $96,000, respectively.

Step by step solution

01

Calculation of premium expense

Particular

Amount

Expected UPC codes to be sent in (1,200,000 x 30%)

$360,000

Less: UPC codes redeemed

(120,000)

Estimated future redemptions

$240,000

Premium liability

(240,000 / 3) x ($1.10+$0.60-$0.50)

$96,000

02

Journal entry

Date

Accounts & Explanations

Debit

Credit

Dec.31,2017

Premium Expense

$96,000

Premium Liability

$96,000

To record the cost of the estimated outstanding claim

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Most popular questions from this chapter

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Question: Amsterdam Company uses a periodic inventory system. For April, when the company sold 600 units, the following information is available.

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Instructions

Prepare all necessary journal entries in 2017 for both situations.

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