Question

Moon Company includes 1 coupon in each box of soap powder that it packs, 10 coupons being redeemable for a premium consisting of a kitchen utensil. In 2018, Moon Company purchased 46,000 premiums at $1.00 each and sold 650,000 boxes of soap powder @ $5.00 per box. Based on past experience, it is estimated that 64% of the coupons will be redeemed. During 2018, 168,000 coupons were presented for redemption.

During 2019, 38,000 premiums were purchased at $1.10. The company sold 1,100,000 boxes of soap at $5.00 and 510,000 coupons were presented for redemption.

Instructions Prepare all the entries that would be made relative to sales of soap powder and to the premium plan in both 2018 and 2019. Assume a FIFO inventory flow.

Answer 1

SOLUTIKON:

The Following Journal Entries followed the FIFO. VALUTION

DATE	PARTICULARS	DEBIT ($)	CREDIT ($)
In 2018	Premium Inventory a/c dr To cash a/c (being 46,000 premiums purchased @ $1.00 each)	46,000	46,000
	Cash (Accounts Recivables ) a/c dr To Premium Inventory a/c (being sold 650,000 boxes of soap powders @ $5.00)	3,250,000	3,250,000
	Premium expense a/c dr To Premium Inventory (being redeep value of coupons is (168,000/10) * $1.00 = $16,800)	16,800	16,800
	Premium expense a/c dr To Premium Liability a/c (being premium expense will be 650,000 *.64 =416,000 coupons. and 416,000 - 168,000 =248,000 /10 = 24,800 premiums ) therfore 24,800 * $1.00 = $24,800 .	24,800	24,800
IN 2019	Premium Inventory a/c dr To Cash (Accoumts payable ) a/c (being purchased premiums 38,000 *$1.10 each)	41,800	41,800
	Cash a/c dr To Sales Revenue a/c (being company sold 11,00,000 @$5.00 each)	55,00,000	55,00,000
	Premium Liability a/c dr To Premium Inventory (being carry forward of 2018 balance of coupons was redeemed 24,800 * $1.00 = $24,800)	24,800	24,800

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