/*! This file is auto-generated */ .wp-block-button__link{color:#fff;background-color:#32373c;border-radius:9999px;box-shadow:none;text-decoration:none;padding:calc(.667em + 2px) calc(1.333em + 2px);font-size:1.125em}.wp-block-file__button{background:#32373c;color:#fff;text-decoration:none} Q9P (Premium Entries and Financial S... [FREE SOLUTION] | 91影视

91影视

Log out

Learning Materials

Features

Discover

Chapter 13: Q9P (page 701)

(Premium Entries and Financial Statement Presentation) Sycamore Candy Company offers an MP3 download (seven-single medley) as a premium for every five candy bar wrappers presented by customers together with \(2.50. The candy bars are sold by the company to distributors for 30 cents each. The purchase price of each download code to the company is \)2.25. In addition, it costs 50 cents to distribute each code. The results of the premium plan for the years 2017 and 2018 are as follows. (All purchases and sales are for cash.)

20172018

MP3 codes purchased 250,000 330,000

Candy bars sold 2,895,400 2,743,600

Wrappers redeemed 1,200,000 1,500,000

2017 wrappers expected to be redeemed in 2018 290,000

2018 wrappers expected to be redeemed in 2019 350,000

Instructions

(a) Prepare the journal entries that should be made in 2017 and 2018 to record the transactions related to the premium plan of the Sycamore Candy Company.

(b) Indicate the account names, amounts, and classifications of the items related to the premium plan that would appear on the balance sheet and the income statement at the end of 2017 and 2018

Short Answer

Expert verified

(a)Journal entries for year 2017 and 2018 are recorded in Step 1.

(b)Indications of accounts, amount and classifications are reported in Step 3.

Step by step solution

01

(a) Journal entry for 2018 and 2017

Date

Accounts & Explanations

Debit

Credit

For Year 2017

2017

Inventory of Premiums (250,000 x $2.25)

$562,500

Cash

$562,500

(To record purchase of MP3 downloads)

2017

Cash (2,895,400 x 0.30)

$868,620

Sales Revenue

$868,620

(To record sale of candy bars)

2017

Cash

$480,000

Premium Expense

$60,000

Inventory of Premiums

$540,000

(To record the redemption of wrappers)

Dec.31,2017

Premium Expense

(290,000 / 5) x ($2.25+$0.50-$2.50)

$14,500

Premium Liability

$14,500

(To record the estimated premium claims)

For Year 2018

2018

Inventory of Premiums (330,000 x $2.25)

$742,500

Cash

$742,500

(To record purchase of MP3 downloads)

2018

Cash (2,743,600 x 0.30)

$823,080

Sales Revenue

$823,080

(To record sale of candy bars)

2018

Cash ($750,000 - $150,000)

$600,000

Premium Liability

$14,500

Premium Expense

$60,500

Inventory of Premiums

$675,000

(To record the redemption of wrappers)

Dec.31,2018

Premium Expense

(350,000 / 5) x ($2.25+$0.50-$2.50)

$17,500

Premium Liability

$17,500

(To record the estimated premium claims)

02

Calculations of premium expense and related accounts for 2018 and 2017

For Year 2017

Total wrappers redeemed

1,200,000

Ratio of codes

5

Number of codes (1,200,000 / 5)

240,000

Purchase price of codes

(240,000 x $2.25)

$540,000

Distribution cost

(240,000 x $0.50)

$120,000

Total cost

$660,000

Less: Cash received

(240,000 x $2.50)

($600,000)

Premium expense for 2017

$60,000

For Year 2018

Total wrappers redeemed

1,500,000

Ratio of codes

5

Number of codes (1,200,000 / 5)

300,000

Purchase price of codes

(300,000 x $2.25)

$675,000

Distribution cost

(300,000 x $0.50)

$150,000

Total cost

$825,000

Less: Cash received

(300,000 x $2.50)

($750,000)

Premium expense for codes

$75,000

Less: Claim of 2017

($14,500)

Premium expense for 2018

$60,500

03

(b) Indications of accounts of balance sheet and income statement

For Year 2017


Balance sheet


Account

Amount

Classification

Inventory of premiums

(250,000-240,000) x $2.25

$22,500

Current asset

Premium liability

$14,500

Current liability

Income statement

Account

Amount

Classification

Premium expense

($60,000+$14,500)

$74,500

Selling expense

For Year 2018


Balance sheet


Account

Amount

Classification

Inventory of premiums

(10,000+330,000-300,000) x $2.25

$90,000

Current asset

Premium liability

$17,500

Current liability

Income statement

Account

Amount

Classification

Premium expense

($60,500+$17,500)

$78,000

Selling expense

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with 91影视!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

What are compensated absences?

Eddie Zambrano Corporation began operations on January 1, 2017. During its first 3 years of operations, Zambrano reported net income and declared dividends as follows.

Net Income Dividends Declared

2014 \( 40,000 \) 鈥�0鈥�

2015 125,000 50,000

2016 160,000 50,000

The following information relates to 2017.

Income before income tax \(240,000

Prior period adjustment: understatement of 2015 depreciation expense (before taxes) \)25,000

Cumulative decrease in income from change in inventory methods (before taxes) \(35,000

Dividends declared (of this amount, \)25,000 will be paid on Jan. 15, 2018) \(100,000

Effective tax rate 40%

Instructions

  1. Prepare a 2017 retained earnings statement for Eddie Zambrano Corporation.
  2. Assume Eddie Zambrano Corporation restricted retained earnings in the amount of \)70,000 on December 31, 2017. After this action, what would Zambrano report as total retained earnings in its December 31, 2017, balance sheet?

(Equity Securities Entries) McElroy Company has the following portfolio of investment securities at September

30, 2017, its most recent reporting date.

Investment Securities Cost Fair Value

Horton, Inc. common (5,000 shares) \(215,000 \)200,000

Monty, Inc. preferred (3,500 shares) 133,000 140,000

Oakwood Corp. common (1,000 shares) 180,000 179,000

On October 10, 2017, the Horton shares were sold at a price of \(54 per share. In addition, 3,000 shares of Patriot common stock

were acquired at \)54.50 per share on November 2, 2017. December 31, 2017, fair values were Monty \(106,000, Patriot

\)132,000, and Oakwood $193,000.

Instructions

Prepare the journal entries to record the sale, purchase, and adjusting entries related to the equity securities in the last quarter of 2017

Southeast Airlines Inc. awards members of its Flightline program a second ticket at half price, valid for 2 years anywhere on its flight system, when a full-price ticket is purchased. How would you account for the full-fare and half-fare tickets?

How are the terms 鈥減robable,鈥� 鈥渞easonably possible,鈥� and 鈥渞emote鈥� related to contingent liabilities?
See all solutions

Recommended explanations on Business Studies Textbooks

Financial Performance

Read Explanation

International Business

Read Explanation

Nature of Business

Read Explanation

Introduction to Business

Read Explanation

Business Operations

Read Explanation

Sales in Business

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.