Question

Kane Candy Company offers a coffee mug as a premium for every ten $1 candy bar wrappers presented by customers together with $2. The purchase price of each mug to the company is $1.80; in addition it costs $1.20 to mail each mug. The results of the premium plan for the years 2017 and 2018 are as follows (assume all purchases and sales are for cash):

		2017		2018
Coffee mugs purchased		730,000		820,000
Candy bars sold		5,700,000		6,720,000
Wrappers redeemed		2,800,000		4,190,000
2017 wrappers expected to be redeemed in 2018		2,100,000
2018 wrappers expected to be redeemed in 2019				2,660,000

Indicate the account names, amounts, and classifications of the items related to the premium plan that would appear on the Kane Candy Company balance sheet and income statement at the end of 2017 and 2018.

Balance Sheet

Account Name		Class		2017		2018
				$		$
				$		$

Income Statement

Account Name		Class		2017		2018
				$		$

Answer 1

Balance Sheet

	2017	2018
Current Asset
Inventory of Premiums	810000	721800
Current Liabilities
Premium Liability	210000	266000

Income Statement

	2017	2018
Operating Expense
Premium Expense	490000	475000

Explanation:

Journel Entries

Date	Particulars	Debit	Credit
2017	Inventory of Premium A/c	1314000
	To Cash		1314000
	(730000*$1.80)
	(To record the purchase of premium Inventory)
	Cash Account      Dr	5700000
	To Sales Revenue		5700000
	(5700000* $1)
	(To record the Sales )
	Cash Account      Dr ( 2800000/10=280000 *($ 2.00 - $ 1.20)	224000
	Premium Expense A/c     Dr   (280000* ($1.80+$1.20 -$2.00)	280000
	To Inventory of Premium (280000* $1.80)		504000
	(To record the Wrappers redeemed)
	Premium Expense A/c     Dr	210000
	To Premium Liability		210000
	(2100000 / 10 = 210000 * ($1.80+$1.20-$2.00) = $ 210000)
	(To record Premium Liability)

Date	Particulars	Debit	Credit
2018	Inventory of Premium A/c	1476000
	To Cash		1476000
	(820000*$1.80)
	(To record the purchase of premium Inventory)
	Cash Account      Dr	6720000
	To Sales Revenue		6720000
	(6720000* $1)
	(To record the Sales )
	Cash Account      Dr ( 4190000/10 = 419000 * ($2.00-$1.20)	335200
	Premium Liability A/c    Dr	210000
	Premium Expense A/c     Dr   ( 419000- 210000) * ( $ 1.80 + $ 1.20 - $ 2.00)	209000
	To Inventory of Premium ( 419000 * $1.80)		754200
	(To record the Wrappers redeemed)
	Premium Expense A/c     Dr	266000
	To Premium Liability		266000
	(2660000 / 10 = 266000 * ($ 1.80 + $ 1.20 -$2.00))
	(To record Premium Liability)