Question

tellar Company offers an MP3 download (seven-single medley) as a premium for every 6 candy bar wrappers presented by customers together with $3.20. 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 $2.95. In addition, it costs 50 cents to distribute each code. The results of the premium plan for the years 2017 and 2018 are as follows. (All purchases and sales are for cash.) 2017 2018 MP3 codes purchased 330,000 435,600 Candy bars sold 2,996,000 2,887,200 Wrappers redeemed 1,584,000 1,980,000 2017 wrappers expected to be redeemed in 2018 382,800 2018 wrappers expected to be redeemed in 2019 462,000

(a) Prepare the journal entries that should be made in 2017 and 2018 to record the transactions related to the premium plan of the Stellar Company. (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 2017 (To record the premium inventory.) (To record the sales.) (To record the expense associated with the sale.) (To record the premium liability.)

Answer 1

Solution:

Journal entry for the year 2017:

Date	Account title and explanation	Debit	Credit
1	Inventory or premiums($330,000 *2.95)	$973,500
	Cash		$973,500
	(To record the pemium inventory)
2	Cash(2,996,000 *0.30)	$898,800
	Sales revenue		$898,800
	(To record the sale)
3	Cash (1,584,000/6)*(3.20 - 0.5)	$712,800
	Premium expense(1,584,000/6)*(32.95+0.5 -3.20)	$66,000
	Inventory of premium		$778,800
	(To record the expense associated with the sale)
4	Premium expense (382,800 /6)*(32.95+0.5 -3.20)	$15,950
	Premium liability		$15,950
	(To record the premium liability)

Journal entry for the year 2018:

Date	Account title and explanation	Debit	Credit
1	Inventory or premiums($435,600 *2.95)	$1,285,020
	Cash		$1,285,020
	(To record the pemium inventory)
2	Cash(2,887,200 *0.30)	$866,160
	Sales revenue		$866,160
	(To record the sale)
3	Cash (1,980,000/6)*(3.20 - 0.5)	$891,000
	Premium liability	$15,950
	Premium expense[(1,980,000/6)*(32.95+0.5 -3.20)]- $15,950	$66,550
	Inventory of premium		$973,500
	(To record the expense associated with the sale)
4	Premium expense (462,000 /6)*(32.95+0.5 -3.20)	$19,250
	Premium liability		$19,250
	(To record the premium liability)

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