Q8P P13-8 (L03) (Premium Entries) To... [FREE SOLUTION]

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.

Expert verified

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

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

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 $(\frac{115, 000}{5} 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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