Question

No Doubt Company includes 1 coupon in each box of soap powder that it packs, and 10 coupons are redeemable for a premium (a kitchen utensil). In 2014, No Doubt Company purchased 8,800 premiums at 80 cents each and sold 110,000 boxes of soap powder at $3.30 per box; 44,000 coupons were presented for redemption in 2014. It is estimated that 60% of the coupons will eventually be presented for redemption.

Instructions

Prepare all the entries that would be made relative to sales of soap powder and to the premium plan in 2014

Answer 1

Concepts and reason

Journal entries: Journal entries are the accounting entries recorded in the general journal. Journal entries are recorded as per double entry system of accounting. It records the accounting effect of an accounting transaction. According to double entry system of accounting, total of debits is always equal to the total of credits.

Fundamentals

Inventory: Inventory refers to the stock of raw material, work-in-process and finished goods. Inventory is a current asset. Inventory is valued as per the standards governing valuation of inventory.

Expenses: An expense is the cost incurred as a part of the operating activities of a company during an accounting period. Expenses can be operating or non-operating expense.

The journal entry to record purchase of 8,800 premiums at $0.80 each is as follows:

The journal entry to record sale of 110,000 boxes at $3.30 per box is as follows:

The journal entry to record premium on redemption is as follows:

The amount of premium expense is calculated as follows:

The journal entry to record liability on account of premium is as follows:

Ans:

The journal entry to record purchase of 8,800 premiums at $0.80 each is as follows:

The journal entry to record sale of 110,000 boxes at $3.30 per box is as follows:

The journal entry to record premium on redemption is as follows:

The journal entry to record premium on redemption is as follows: