Question

Problem 13-09 (Part Level Submission) Nash offers an MP3 download (seven-single medley) as a premium for every 5 candy bar wrappers presented by customers together with $3.10. 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 $2.85. In addition, it costs 50 cents to distribute each code. The results of the premium plan for the years 2020 and 2021 are as follows. (All purchases and sales are for cash.) 2020 2021 MP3 codes purchased 320,000 422,400 Candy bars sold 2,664,700 2,554,300 Wrappers redeemed 1,536,000 1,920,000 2020 wrappers expected to be redeemed in 2021 371,200 2021 wrappers expected to be redeemed in 2022 448,000 (b) Indicate the amounts for each accounts, and classifications of the items related to the premium plan that would appear on the balance sheet and the income statement at the end of 2020 and 2021. Amount Account 2020 2021 Classification Inventory of Premiums $ $ Property, Plant and EquipmentSelling ExpenseLong-term InvestmentsStockholders' EquityCurrent LiabilityCurrent Asset Premium Liability Current LiabilityCurrent AssetStockholders' EquityProperty, Plant and EquipmentLong-term InvestmentsSelling Expense Premium Expense Property, Plant and EquipmentSelling ExpenseStockholders' EquityCurrent AssetCurrent LiabilityLong-term Investments SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT Attempts: 0 of 3 used SAVE FOR LATER SUBMIT ANSWER

Answer 1

2020 No Particulars Debit Credit a 912,000 912,000 Inventory of premium Cash (To record the pemium inventory.) (320000*2.85) b 799,410 799,410 Cash Sales Revenue (To record the sales.) (2664700*0.30) 798,720 76,800 c** Cash =952320-153600 Premium expense inventory of premium (To record the expense associated with the sale.) 875,520 18,560 18,560 Premium expense Premium liability (To record the premium liability.) (371200/5)* (2.85+0.5-3.1)

2021 a 1,203,840 1,203,840 Inventory of premium Cash (To record the pemium inventory.) (422400*2.85) b Cash 766,290 766,290 Sales Revenue (To record the sales.) (2554300*0.3) Cash (1190400-192000) Premium expense Premium Liabilty inventory of premium |(To record the expense associated with the sale.) 998,400 77,440 18,560 1,094,400 Premium expense 22,400 22,400 Premium liability (To record the premium liability.) (448000/5)* (2.85+0.5-3.10)

2020 2021 CLASIFICATION Inventory of Premiums 36,480 (912000-875520) 145,920 Current Asset (36480+1203840-1094400) Premiums Liability 18,560 22,400 Current Laibility (18560+22400-18560) Premium Expense 99,840 Selling Expense 95,360 (76800+18560) (77440+22400)

**working: Computation of premium expense: 2020 2021 Wrappers redeemed 1,536,000 1,920,000 / wrappers required to be presented for each MP3 cod 5 No. of MP3 code 307,200 384,000 x purchase price of each download code to the company 2.85 2.85 Total Purchase cost of MP3 codes 875,520 1,094,400 Postage (307200*0.50),(384000*0.5) 153,600 192,000 Total cost 1,029,120 1,286,400 Less: Cash received (307200*3.1), (384000*3.1) - 952,320 -1,190,400 Premium Expense of Codes issued 76,800 96,000 Less : Outstanding Claims at 12/31/2020 charged to 201 - - 18,560 | Premium Expense Charge able to 2021 76,800 77,440