Question

(Ch. 13) Irwin Music Shop gives its customers coupons redeemable for a poster plus a Bo Diddley CD. One coupon is issued for each dollar of sales. On the surrender of 80 coupons and $8.00 cash, the poster and CD are given to the customer. It is estimated that 70% of the coupons will be presented for redemption. Sales for the first period were $800,000, and the coupons redeemed totaled 380,000. Sales for the second period were $940,000, and the coupons redeemed totaled 838,000. Irwin Music Shop bought 30,000 posters at $2.20/poster and 30,000 CDs at $7.00/CD. Instructions: Prepare the following entries for the two periods, assuming all the coupons expected to be redeemed from the first period were redeemed by the end of the second period.

please provide work

Answer 1

Ans.

Period 1

Date	Account title & Explanation	Debit	Credit
	Poster (30,000 * $ 2.2)	$          66,000.00
	CDs (30,000 * $ 7)	$       210,000.00
	Cash		$      276,000.00
	[To record the purchase of posters and cds]
	Cash [( 380,000 / 80 )* $8]	$          38,000.00
	Premium Expense [( 380,000 / 80 )*( $9.2 - $8)]	$            5,700.00
	Inventory of Poster[( 380,000 / 80 )* $2.2]		$        10,450.00
	Inventory of CDs [( 380,000 / 80 )* $7]		$        33,250.00
	[To record coupons redeemed ]
	Premium Expense	$           2,700.00
	Estimated Liability for Premiums		$           2,700.00
	[To record accrual of premium expense]

Total estimated coupons to be redeemed ($ 800,000 /80 * 70%)	7,000.00
Less: Coupons redeemed (380,000 / 80 )	4,750.00
Total unredeemed coupons	2,250.00
Multiply by: Cost ( $9.2 - $8)	$                    1.20
Total estimated liability	$          2,700.00

Period 2

Date	Account title & Explanation	Debit	Credit
	Cash [( 838,000 / 80 )* $8]	$          83,800.00
	Premium Expense	$            9,870.00
	Estimated Liability for Premiums	$            2,700.00
	Inventory of Poster[( 838,000 / 80 )* $2.2]		$        23,045.00
	Inventory of CDs [( 838,000 / 80 )* $7]		$        73,325.00
	[To record coupons redeemed ]

Total estimated coupons to be redeemed (Period 1)	2,250.00
Total estimated coupons to be redeemed (Period 2) [940,000 /80 *70%]	8,225.00
Total coupons to be redeemed (Period 1 and Period 2)	10,475.00
Less: Coupons redeemed [838,000 / 80]	10,475.00
Total unredeemed coupons	-
Total estimated liability	$                         -