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Chapter 13: Q8P (page 700)

P13-8 (L03) (Premium Entries) To stimulate the sales of its Alladin breakfast cereal, Loptien Company places 1 coupon in each box. Five coupons are redeemable for a premium consisting of a children's hand puppet. In 2018, the company purchases 40,000 puppets at \(1.50 each and sells 480,000 boxes of Alladin at \) 3.75 a box. From Its experience with other similar premium offers, the company estimates that 40% of the coupons issued will be mailed back for redemption. During 2018, 115,000 coupons are presented for redemption.

InstructionsPrepare the journal entries that should be recorded in 2018 relative to the premium plan.

Short Answer

Expert verified

Inventory premium is debited, and cash is credited by $60,000 to record the purchase of premium inventory.

Step by step solution

01

Meaning of Journal

Journal is therecording of monetary transactions of a business entity in its accounting books in the manner in which the transaction occurred.

02

Showing journal entries

Date

Particulars

Debit ($)

Credit ($)

Inventory of premiums (40,000鈥塸耻辫辫别迟蝉脳$1.50)

60,000

Cash

60,000

(To record purchase of premium inventory)

Accounts Receivable

1,800,000

Sales Revenue A/c

1,800,000

(To record sales 480000 boxes @ $3.75)

Premium expenses 115,0005脳$1.50

34,500

Inventory of premium

34500

(To record expenses related to sale)

Premium Expenses (115,000脳40%脳$1.50)

69,000

Premium liability

69000

(To record premium liability)

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Most popular questions from this chapter

Fairbanks Corporation purchased 400 ordinary shares of Sherman Inc. as a trading investment for \(13,200. During the year, Sherman paid a cash dividend of \)3.25 per share. At year-end, Sherman shares were selling for $34.50 per share. Prepare Fairbanks鈥� journal entries to record (a) the purchase of the investment, (b) the dividends received, and (c) the fair value adjustment

L (Liability Entries and Adjustments) Listed below are selected transactions of Schultz Department Store for the current year ending December 31.

1. On December 5, the store received \(500 from the Selig Players as a deposit to be returned after certain furniture to be used in stage production was returned on January 15.

2. During December, cash sales totaled \)798,000, which includes the 5% sales tax that must be remitted to the state by the fifteenth day of the following month.

3. On December 10, the store purchased for cash three delivery trucks for \(120,000. The trucks were purchased in a state that applies a 5% sales tax.

4. The store determined it will cost \)100,000 to restore the area (considered a land improvement) surrounding one of its store parking lots, when the store is closed in 2 years. Schultz estimates the fair value of the obligation at December 31 is $84,000.

Instructions

Prepare all the journal entries necessary to record the transactions noted above as they occurred and any adjusting journal entries relative to the transactions that would be required to present fair financial statements at December 31. Date each entry. For simplicity, assume that adjusting entries are recorded only once a year on December 31.

Question: When should liabilities for each of the following items be recorded on the books of an ordinary business corporation?

  1. Acquisition of goods by purchase on credit.
  2. Officers鈥� salaries.
  3. Special bonus to employees.
  4. Dividends.
  5. Purchase commitments.

Distinguish between a current liability, such as accounts payable, and a provision.

(Cash Flow Hedge) On January 2, 2017, Parton Company issues a 5-year, \(10,000,000 note at LIBOR, with

interest paid annually. The variable rate is reset at the end of each year. The LIBOR rate for the first year is 5.8%.

Parton Company decides it prefers fixed-rate financing and wants to lock in a rate of 6%. As a result, Parton enters into an

interest rate swap to pay 6% fixed and receive LIBOR based on \)10 million. The variable rate is reset to 6.6% on January 2, 2018.

Instructions

(a) Compute the net interest expense to be reported for this note and related swap transactions as of December 31, 2017.

(b) Compute the net interest expense to be reported for this note and related swap transactions as of December 31, 2018.
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