Question

Pharoah Company offers an MP3 download (seven-single medley) as a premium for every 5 candy bar wrappers presented by customers together with $2.55. 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 $2.30. 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.) MP3 codes purchased Candy bars sold Wrappers redeemed 2017 wrappers expected to be redeemed in 2018 2018 wrappers expected to be redeemed in 2019 2017 2018 255,000 336,600 3,147,300 2,880,400 1,224,000 1,530,000 295,800 357,000 Prepare the journal entries that should be made in 2017 and 2018 to record the transactions related to the premium plan of the Pharoah Company. (If no entry is required, select "No Entry for the account titles and enter for the amounts, Credit account titles are automatically Indented when amount is entered. Do not indent manually. Round answers to o decimal places, e.g. 2,525.) Account Titles and Explanation Debit Credit 2017 (To record the premium inventory.) (To record the sales.) (To record the expense associated with the sale.) (To record the premium liability.)

Answer 1

Account Titles and Explanation	Debit	Credit
2017
Inventory of Premiums (255000 x $2.30)	586500
Cash		586500
(To record the premium inventory)
Cash	944190
Sales Revenue (3147300 x $0.30)		944190
(To record the sales)
Cash [1224000/5 = 244800 x ($2.55 - $0.50)]	501840
Premium Expense [244800 x ($2.30 + $0.50 - $2.55)]	61200
Inventory of Premiums (244800 x $2.30)		563040
(To record the expense associated with the sale)
Premium Expense	14790
Premium Liability [295800/5 = 59160 x ($2.30 + $0.50 - $2.55)]		14790
(To record the premium liability)
2018
Inventory of Premiums (336600 x $2.30)	774180
Cash		774180
(To record the premium inventory)
Cash	864120
Sales Revenue (2880400 x $0.30)		864120
(To record the sales)
Cash [1530000/5 = 306000 x ($2.55 - $0.50)]	627300
Premium Liability	14790
Premium Expense [(306000 - 59160) x ($2.30 + $0.50 - $2.55)]	61710
Inventory of Premiums (306000 x $2.30)		703800
(To record the expense associated with the sale)
Premium Expense	17850
Premium Liability [357000/5 = 71400 x ($2.30 + $0.50 - $2.55)]		17850
(To record the premium liability)

	Amount
Account	2017	2018	Classification
Inventory of Premiums	23460	93840	Balance Sheet - Current Asset
Premium Liability	14790	17850	Balance Sheet - Current Liability
Premium Expense	75990	79560	Income Statement - Selling Expenses