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

Prepare the general journal entries that should be made in 2017 and 2018 related to the above plan by Kane Candy. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

Date	Account Titles and Explanation	Debit	Credit
2017
	(To record purchase of coffee mugs)
2017
	(To record sale of candy bars)
2017
	(To record coffee mugs offered for wrappers redeemed)
2017
	(To record liability against expected redemption of wrappers in 2018)
2018
	(To record purchase of coffee mugs)
2018
	(To record sale of candy bars)
2018
	(To record coffee mugs offered for wrappers redeemed)
2018
	(To record liability against expected redemption of wrappers in 2019)

Answer 1

Date	Account Titles and Explanation	Debit	Credit
2017	Inventory of Premiums (7300000 * $1.80)	$1,314,000
	Cash		$1,314,000
	(To record purchase of coffee mugs)
2017	Cash (5700000 * $1)	$5,700,000
	Sales Revenue		$5,700,000
	(To record sale of candy bars)
2017	Cash $280000 * ($2 - $1.2)	$224,000
	Premium Expense ($2800000/10)	$280,000
	Inventory of Premiums		$504,000
	(To record coffee mugs offered for wrappers redeemed)
2017	Premium Expense (2100000 * $1)/10	$210,000
	Premiums Liability		$210,000
	(To record liability against expected redemption of wrappers in 2018)
2018	Inventory of Premiums (8200000 * $1.80)	$1,476,000
	Cash		$1,476,000
	(To record purchase of coffee mugs)
2018	Cash (6720000 * $1)	$6,720,000
	Sales Revenue		$6,720,000
	(To record sale of candy bars)
2018	Cash [4,190,000 ÷ 10 = 419,000 × ($2.00 – $1.20)	$335,200
	Premium Liability	$210,000
	Premium Expense	$209,000
	Inventory of Premium (419,000 × $1.80)		$754,200
	(To record coffee mugs offered for wrappers redeemed)
2018	Premium Expense (2,660,000 ÷ 10 = 266,000 × $1	$266,000
	Premium Liability		$266,000
	(To record liability against expected redemption of wrappers in 2019)