Question

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CALCULATOR PRINTER VERSION BACK Problem 13-09 (Part Level Submission) Monty offers an MP3 download (seven-single medley) as a premium for every 5 candy bar wrappers presented by customers together with $3.50. 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 $3.25. 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.) MP3 codes purchased Candy bars sold Wrappers redeemed 2020 wrappers expected to be redeemed in 2021 2021 wrappers expected to be redeemed in 2022 2020 2021 360,000 475,200 2,825,000 2,546,500 1,728,000 2,160,000 417,600 504,000 (a) Your answer is partially correct. Try again. Prepare the journal entries that should be made in 2020 and 2021 to record the transactions related to the premium plan of the Monty. (If no entry is required, select "No Entry for the account tities and enter for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to decimal places, e.g. 1,525.) Account Titles and Explanation Debit Credit 2020 Tnventory of Premium 1,170,000 Cash (To record the premium inventory.) 1,170,000 847,500 847,500 Sales Revenue (To record the sales) 1,030,000 Premium Expense 36.400 1,123,200 Trwentory of Premium (To record the expense associated with the sale) MacBook Air

Answer 1

Solution

Premium expense for 2020:

Mp3(1,728,000/5)=345,600

Cost to purchase codes(345,600× $3.25)=$1,123,200

Distribution cost(345,600×.50=$172,800

Total cost=$1,296,000

Less cash received(345,600×$3.5)=(1,209,600)

Premium expense=$86,400

	Account titles and explanation	Debit	Credit
2020	Inventory of premium(360,000×$3.75)	$1,170,000
	Cash		$1,170,000
	(To record the premium inventory)
	Cash(2,825,000×$.30)	$847,500
	Sales revenue		$847,500
	(To record the sales)
	Cash(1,209,600-172,800)	$1,036,800
	Premium expense	$86,400
	Inventory of premium		$1,123,200
	(To record the expense associated with sale)
	Premium expense(417,600/5)×(3.25+.50-3.5)	$20,880
	Premium liability		$20,880
	(To record the premium liability)

	Account titles and explanation	Debit	Credit
2021	Inventory of premium(475,000×$3.25)	$1,543,750
	Cash		$1,543,750
	(To record the premium inventory)
	Cash(2,546,500×$.30)	$763,950
	Sales revenue		$763,950
	(To record the sales)
	Cash(1,512,000-216,000)	$1,296,000
	Premium expense	$87,120
	Premium Liability	$20,880
	Inventory of premium		$1,404,000
	(To record the expense associated with the sale)
	Premium expense (540,000/5)×(3.25+.50-3.5)	$27,000
	Premium liability		$27,000
	(To record the premium liability)

Premium expense for 2021:

Mp3(2,160,000/6)=432,000

Cost to purchase codes(432,000 × $3.25)=$1,404,000

Distribution cost(432,000 ×.50=$216,000

Total cost=$1,620,000

Less cash received(432,000 ×$3.5)=(1,512,000)

Premium expense=$87,120 (108,000-20,880)