Question

Kane Candy Company offers a coffee mug as a premium for every ten $1 candy bar wrappers presented by customers together with $2. The purchase price of each mug to the company is $1.80; in addition it costs $1.20 to mail each mug. The results of the premium plan for the years 2017 and 2018 are as follows (assume all purchases and sales are for cash):

		2017		2018
Coffee mugs purchased		710,000		780,000
Candy bars sold		5,800,000		6,790,000
Wrappers redeemed		2,700,000		4,180,000
2017 wrappers expected to be redeemed in 2018		2,100,000
2018 wrappers expected to be redeemed in 2019				2,650,000

Part 2 (please show work)

Indicate the account names, amounts, and classifications of the items related to the premium plan that would appear on the Kane Candy Company balance sheet and income statement at the end of 2017 and 2018.

Balance Sheet

Account Name		Class		2017		2018
		Current AssetOperating ExpenseOperating IncomeCurrent Liability		$		$
		Operating IncomeCurrent AssetCurrent LiabilityOperating Expense		$		$

Income Statement

Account Name		Class		2017		2018
		Operating ExpenseCurrent LiabilityOperating IncomeCurrent Asset		$		$

Answer 1

Kane Candy Company Journal Enteries Date Particulars 2017 Inventory of Premiums a/c To Cash (710,000 x $1.80 = $1,296,000) Dr. Debit in $ Credit in $ 1278000 1278000 Dr. 5800000 Cash a/c To Sales Revenue (5,800,000 x $1 = $5,600,000) 5800000 Cash a/c Dr. 216000 Premium Expense a/c Dr. 270000 To Inventory of Premiums 486000 [2,700,000 + 10 = 270,000 X ($2.00 - $1.20) = $216,000 270,000 x $1.80 = $486,000] Premium Expense a/c Dr. 210000 To Premiums Liability (2,100,000 + 10 = 210,000 x $1 = $210,000) 210000 2018 Dr. 1404000 Inventory of Premiums a/c To Cash (780,000 x $1.80 = $1,404,000) 1404000 Dr. 6790000 Cash a/c To Sales Revenue (6,790,000 x $1 = $6,750,000) 6790000 Cash a/c Dr. 212000 Premium Liability a/c Dr. 210000 Premium Expense a/c Dr. 55000 To Inventory of Premiums 477000 [2,650,000 + 10 = 265,000 x ($2.00 - $1.20) = $212,000 265,000 x $1.80 = $477,000] Premium Expense a/c Dr. 265000 To Premium Liability (2,650,000 + 10 = 265,000 x $1 = $265,000) 265000

Balance Sheet 2017 2018 Current Asset Inventory of Premiums 792000 1719000 Current Liability Premium Liability 210000 265000 Income Statement 2017 2018 Operating Expense: Premium Expense 480000 320000