Question

Cheyenne 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 2022 378,000

(a) Prepare the journal entries that should be made in 2020 and 2021 to record the transactions related to the premium plan of the Cheyenne. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 1,525.) Account Titles and Explanation Debit Credit 2020 (To record the premium inventory.) (To record the sales.) (To record the expense associated with the sale.) (To record the premium liability.) 2021 (To record the premium inventory.) (To record the sales.) (To record the expense associated with the sale.) (To record the premium liability.)

Answer 1

Answer:

Date	Particuars	Debit ($)	Credit ($)
2020	Inventory or premiums (270000*2.35)	634500
	Cash		634500
	(To record the premium inventory)
	Cash (2993500*0.3)	898050
	Sales revenue		898050
	(To record the sale)
	Cash (1296000/6)*(2.6-0.5)	453600
	Premium expense (1296000/6)*(2.35-0.5-2.6)	54000
	Inventory of premiums		507600
	(To record the expense associated with the sale)
	Premium expense (313200/6)*(2.35+0.5-2.6)	13050
	Premium liability		13050
	(To record the premium liability )
2021	Inventory or premiums (356400*2.35)	837540
	Cash		837540
	(To record the premium inventory)
	Cash (1620000/6)*(2.6-0.5)	567000
	Premium liablity	13050
	Premium expense (1620000/6)*(2.35+0.5-2.6)-13050	54450
	Inventory of premiums		634500
	(To record the expense associated with the sale)
	Premium expense (378000/6)*(2.35+0.5-2.6)	15750
	Premium liability		15750
	(To record the premium liablity)