Question

Sarasota offers an MP3 download (seven-single medley) as a premium for every 5 candy bar wrappers presented by customers together with $3.30. 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 $3.05. 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		340,000		448,800
Candy bars sold		2,665,300		2,676,600
Wrappers redeemed		1,632,000		2,040,000
2020 wrappers expected to be redeemed in 2021		394,400
2021 wrappers expected to be redeemed in 2022				476,000

Part 1

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

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Part 2

Indicate the amounts for each accounts, and classifications of the items related to the premium plan that would appear on the balance sheet and the income statement at the end of 2020 and 2021.

		Amount
Account		2020		2021		Classification
Inventory of Premiums		$		$		Long-term InvestmentsSelling ExpenseCurrent LiabilityCurrent AssetProperty, Plant and EquipmentStockholders' Equity
Premium Liability						Long-term InvestmentsCurrent AssetProperty, Plant and EquipmentSelling ExpenseCurrent LiabilityStockholders' Equity
Premium Expense

Answer 1

Part 1
2020

Account Titles	Debit	Credit
Premium Inventory	$     1,037,000		=340000*3.05
Accounts Payable / Cash		$ 1,037,000
(To record the premium inventory)
Cash / Accounts Receivable	$        799,590		=2665300*0.3
Sales Revenue		$     799,590
(To record the sales)
Cash	$        913,920		=1632000/5*(3.3-0.5)
Premium Expense	$          81,600		=1632000/5*(3.05+0.5-3.3)
Premium Inventory		$     995,520	=1632000/5*3.05
(To record the expense associated with the sale)
Premium Expense	$          19,720		=394400/5*(3.05+0.5-3.3)
Premium Liability		$       19,720
(To record premium liability)

2021

Account Titles	Debit	Credit
Premium Inventory	$     1,368,840		=448800*3.05
Accounts Payable / Cash		$ 1,368,840
(To record the premium inventory)
Cash / Accounts Receivable	$        802,980		=2676600*0.3
Sales Revenue		$     802,980
(To record the sales)
Cash	$     1,142,400		=2040000/5*(3.3-0.5)
Premium Expense	$          82,280		=2040000/5*(3.05+0.5-3.3)-19720
Premium Liability	$          19,720
Premium Inventory		$ 1,244,400	=2040000/5*3.05
(To record the expense associated with the sale)
Premium Expense	$          23,800		=476000/5*(3.05+0.5-3.3)
Premium Liability		$       23,800
(To record premium liability)

Account	2020	2021
Inventory of Premiums	$          41,480	$     165,920	Current Asset
Premium Liability	$          19,720	$       23,800	Current Liability
Premium Expense	$        101,320	$     106,080

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