Question

Pina Company offers an MP3 download (seven-single medley) as a premium for every 6 candy bar wrappers presented by customers together with $3.05. 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 $2.80. 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 315,000 415,800 2,630,800 2,667,200 1,512,000 1,890,000 365,400 441,000 Prepare the journal entries that should be made in 2017 and 2018 to record the transactions related to the premium plan of the Pina Company. (If no entry is required, select "No Entry" for the account titles and enter o for the amounts. Credit account tities are automatically indented when amount is entered. Do not indent manually. Round answers to o decimal places, e.g. 1,525.) 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.) 2018

Answer 1

2017 Particulars No Debit Credit a 882,000 882,000 Inventory of premium Cash (To record the pemium inventory.) (315000*2.8) b 789,240 789,240 Cash | Sales Revenue (To record the sales.) |(2630800*0.3) 642,600 63,000 c** Cash = 768600-126000 Premium expense inventory of premium (To record the expense associated with the sale.) 705,600 15,225 15,225 Premium expense Premium liability (To record the premium liability.) (365400/6)* (2.8+0.5-3.05)

2018 a 1,164,240 1,164,240 Inventory of premium Cash (To record the pemium inventory.) (415800*2.8) b 800,160 800,160 Cash Sales Revenue (To record the sales.) (2667200*0.3) Cash = 960750-157500 Premium expense Premium Liabilty inventory of premium |(To record the expense associated with the sale.) 803,250 63,525 15,225 882,000 Premium expense 18,375 18,375 Premium liability (To record the premium liability.) (441000/6)* (2.8+0.5-3.05)

2017 2018 CLASIFICATION Inventory of Premiums 176,400 458,640 Current Asset (882000-705600) |(176400+1164240-882000) Premiums Liability 15,225 Current Laibility 18,375 (15225+18375-15225) Premium Expense 81,900 Selling Expense 78,225 (78225+15225) (63525+18375)

2017 1,512,000 2018 1,890,000 6 6 **working: Computation of premium expense: Wrappers redeemed / wrappers required to be presented for each MP3 code No. of MP3 code x purchase price of each download code to the company Total Purchase cost of MP3 codes Postage (252000*0.5), (315000*0.5) Total cost Less: Cash received (252000*3.05), (315000*3.05) Premium Expense of Codes issued Less : Outstanding Claims at 12/31/2017 charged to 2017, but redeemed in 2018 Premium Expense Chargeable 252,000 315,000 2.80 2.80 705,600 882,000 126,000 157,500 831,600 1,039,500 768,600 - 960,750 63,000 78,750 - - 15,225 63,000 63,525