Question

To stimulate the sales of its Alladin breakfast cereal, Splish Company places 1 coupon in each box. 5 coupons are redeemable for a premium consisting of a children’s hand puppet. In 2021, the company purchases 42,400 puppets at $1.60 each and sells 462,500 boxes of Alladin at $3.85 a box. From its experience with other similar premium offers, the company estimates that 40% of the coupons issued will be mailed back for redemption. During 2021, 120,000 coupons are presented for redemption.

Prepare the journal entries that should be recorded in 2021 relative to the premium plan. (If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to O decimal places, e.g. 1,525.) Account Titles and Explanation Debit Credit (To record the premium inventory.) (To record the sales.) (To record the expense associated with the sale.) (To record the premium liability.)

Answer 1

Sowtion Debit Credet 67840 67840 1780625 Account title & explanation Premium puppets Inventory [ 42400 X 1.60] To cash [To record the premium Inventory] cash [ 462500 X 3.85] To sales [To record the sales ipremium experte To premium puppets Invertoly |[ To record the expense 1980625 38400 38400 associated with sale Premium expense . To Estimated ability for premiums [ to record the premium liability] 20800 20800

Working Notes: Experse to be recognised for coupons used = [120000/s]x 1.60 38400 Liability to be recognised for coupons ouçtanding = [ 462500 x 400,] - 120000]/5 X 1.60 => 20800