Question

Will Rate:

P13.8B (LO 3) (Premium Entries) To stimulate the sales of its Royal Frozen dinners, King Company places 1 coupon in each box. Ten coupons are redeemable for a premium consisting of a hot meal carrier. In 2021, the company purchases 100,000 hot meal carriers at $2.25 each and sells 2,200,000 boxes of Royal Frozen dinners at $4.75 a dinner. From its experience with other similar premium offers, the company estimates that 30% of the coupons issued will be mailed back for redemption. During 2021, 230,000 coupons are presented for redemption. Instructions | Prepare the journal entries that should be recorded in 2021 relative to the premium plan.

Answer 1

Ans:

The following will be the journal entries to be recorded relative to premium plan.

S.no	Particulars	Debit	Credit
1.	Premium inventory a/c	225,000
	Cash a/c		225,000
	(being hot meal carriers being purchased 100,000 meal carriers @$2.25)
2.	Cash a/c	1,04,50,000
	sales revenue a/c		1,04,50,000
	(being sales of royal frozen dinners @$4.75 a dinner is recorded)
3.	Premium expense a/c	51,750
	Premium inventory		51,750
	(being expense for 230,000 coupons presented calculated as (230,000 / 10)*$2.25 = $51,750)
4.	Premium expense a/c	$96,750
	Premium liability		$96,750
	(being unexpired liability on premium expense recorded, it is calculated as (22,00,000*30% = 660,000 - 230,000 = 430,000, (430,000/10)*$2.25 = 96,750)