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Chapter 13: Q15BE (page 693)

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 sold1,200,000 boxes of cereal. The company expects 30% of the UPC codes to be sent in. During 2017, 120,000 UPC codes wereredeemed. 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 cost of estimated outstanding claim

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Question: (Lessee-Lessor Entries, Operating Lease) Cleveland Inc. leased a new crane to Abriendo Construction under a 5-year noncancelable contract starting January 1, 2017. Terms of the lease require payments of \(33,000 each January 1, starting January 1, 2017. Cleveland will pay insurance, taxes, and maintenance charges on the crane, which has an estimated life of 12 years, a fair value of \)240,000, and a cost to Cleveland of \(240,000. The estimated fair value of the crane is expected to be \)45,000 at the end of the lease term. No bargain-purchase or -renewal options are included in the contract. Both Cleveland and Abriendo adjust and close books annually at December 31. Collectibility of the lease payments is reasonably certain, and no uncertainties exist relative to unreimbursable lessor costs. Abriendo鈥檚 incremental borrowing rate is 10%, and Cleveland鈥檚 implicit interest rate of 9% is known to Abriendo.

Instructions

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12/31/17 12/31/18 12/31/19

Amortized cost \(491,150 \)519,442 \(550,000

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Instructions

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(c) Prepare the adjusting entry to record the bonds at fair value on December 31, 2018.
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