Question

14.3. We offer a special breakfast cereal bowl for $0.25 plus 10 proofs-of-purchase (a.k.a. boxtops). Cost of bowl = $0.75. We estimate 60% of boxtops will be redeemed. Offer begins 6/1/2kA; we acquire 20k bowls to satisfy expected demand. Sales by 6/30/2kA = 300k cereal boxes. Assume 60k boxtops are redeemed by 6/30/2kA; provide entries for June.

explanation required

Answer 1

Answer:

$ 15,000 1 Premium-breakfast cereal bowl Cash (to record the purchase of premium i.e bowls (20,000 * $0.75) 15,000 $ $ 1,500 3,000 2 Cash (6,000 * $0.25) Premium expense (6,000 * ($0.75 -0.25) Premuim-breakfast cereal bowl (6,000 * $0.75) (to record redemption of boxtops) (60,000 boxtops / 10 = 6,000 bowls ditributed) $ 4,500 $ 6,000 3 Premium expense Estimated premium liability (to record the liability for the premium at the end of the year) $ 6,000

Working Notes: Boxtops to be redeemed (60% of 300,000) Less: Boxtops redeemed Balance Premiums to be distributed Estimated warranty liability (12,000 * $0.50) 180,000 60,000 120,000 12,000 6,000 $