Question

Problem 13-9 Bridgeport Company offers an MP3 download (seven-single medley) as a premium for every 6 candy bar wrappers presented by customers together with $3.25. 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 $3.00. 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.) 2017 2018 MP3 codes purchased Candy bars sold Wrappers redeemed 2017 wrappers expected to be redeemed in 2018 2018 wrappers expected to be redeemed in 2019 330,000 435,600 2,643,400 2,918,700 1,584,000 1,980,000 382,800 Your answer is partially correct. Try again. Prepare the journal entries that should be made in 2017 and 2018 to record the transactions related to the premium plan of the Bridgeport Company. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 1,525.) Account Titles and Esplanation 2017 Cash To record the premim inventory 79 Sales Revenue 79. To record the sales.) Expense To record the expense associated with the sale Expense (TO pecord the premiu" liable

Answer 1

Ans- Journal Entries

Date	Account Titles and Explanation	Debit ($)	Credit ($)
2017	Inventory of premium (330,000*$3)	990,000
	Cash		990,000
	(To record the premium inventory)
	Cash (2,643,400*.30)	793,020
	Sales Revenue		793,020
	(To record the sales)
	Cash ($858,000-$132,000)	726,000
	Premium expenses	66,000
	Inventory of premium		792,000
	(To record the expense associated with sale)
	Premium expense (382,800/6)*(3+.50-3.25)	15,950
	Premium liability		15,950
	(To record the premium liability)
2018	Inventory of premium (435,600*3)	1,306,800
	Cash		1,306,800
	(To record the premium inventory)
	Cash	907,500
	Premium expense	66,550
	Premium liability	15,950
	Inventory of premiums (1,980,000/6*$3)		990,000
	(To record the expense associated with the sale)
	Premium Expense	19,250
	Premium liability (462,000/6) *(3+.50-3.25)		19,250
	(To record the premium liability)

Working Note:-

Premium expense for 2017-

MP3= (1,584,000/6)= 264,000

Cost to purchase codes (264,000*$3)= $792,000

Distribution Cost (264,000*.50)= $132,000

Total Cost= $924,000

Less: Cash received ( 264,000*$3.25)= $858,000

Premium Expense= $66,000 ($924,000-$858,000)

Premium expenses for 2018:-

MP3 (1,980,000/6)= 330,000

Cost to purchase codes (330,000*$3)= $990,000

Distribution cost (330,000*.50)= $165,000

Total Cost= $1,155,000

Less: Cash received (330,000* $3.25)= $1,072,500

Premium expenses= $82,500-$15,950 (last year premium liability)

=$66,550

	Amount
Account	2017	2018	Classification
Inventory of Premiums	$198,000 ($990,000-$792,00)	$514,800 ($1,306,800-$990,000+$198,000)	Current Asset
Premium Liability	$15,950	$19,250	Current Liability
Premium Expense	$81,950	$85,800 ($66,550+$19,250)	Selling Expense

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