Question

Sheffield offers an MP3 download (seven-single medley) as a premium for every 6 candy bar wrappers presented by customers together with $2.60. 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 $2.35. 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	270,000	356,400
Candy bars sold	2,993,500	2,832,900
Wrappers redeemed	1,296,000	1,620,000
2020 wrappers expected to be redeemed in 2021	313,200
2021 wrappers expected to be redeemed in 2019		378,000

Prepare the journal entries that should be made in 2020 and 2021 to record the transactions related to the premium plan of the Sheffield.

Answer 1

2020 Particulars DR CR Inventory or premiums $6,34,500.00 =270000*2.35 $6,34,500.00 Cash To record the premium iinventory |=2993500*0.3 Cash $8,98,050.00 $8,98,050.00 Sales revenue To record the sale =(1296000/6) *(2.6-0.5) =(1296000/6) *(2.35+0.5-2.6) $4,53,600.00 $ 54,000.00 Cash Premium expense Inventory of premiums $5,07,600.00 To record the expense associated with the sale -(313200/6)*(2.35+0.5-2.6) Premium expense $ 13,050.00 Premium liability To record the premium liability $ 13,050.00 2021 Inventory or premiums =356400*2.35 $8,37,540.00 $8,37,540.00 Cash To record the premium inventory |=2832900*0.3 Cash $8,49,870.00 $8,49,870.00 Sales revenue To record the sales |=(1620000/6)*(2.6-0.5) $5,67,000.00 Cash Premium liability Premium expense $ 13,050.00 $ 54,450.00 |=(1620000/6)*(2.35+0.5-2.6)-13050 Inventory of premiums $6,34,500.00 To record the expense associated with the sale Premium expense $ 15,750.00 =(378000/6)*(2.35+0.5-2.6) Premium liability To record the premium liability $ 15,750.00