Question

On January 1, 2017, Fro-Yo Inc. began offering customers a cash rebate of $5.00 if the customer mails in 10 proof-of-purchase labels from its frozen yogurt containers. Based on historical experience, the company estimates that 20% of the labels will be redeemed. During 2017, the company sold 5,000,000 frozen yogurt containers at $1, cash, per container. From these sales, 800,000 labels were redeemed in 2017, 150,000 labels were redeemed in 2018, and the remaining labels were never redeemed.

Required:

1.	Prepare the journal entries related to the sale of frozen yogurt and the cash rebate offer for 2017 and 2018.
2.	Next Level Assume that 300,000 labels were redeemed in 2018. Prepare the journal entries related to the cash rebate offer for 2018.

Chart of Accounts

CHART OF ACCOUNTS
Fro-Yo Inc.
General Ledger
ASSETS 111 Cash 121 Accounts Receivable 141 Inventory 152 Prepaid Insurance 181 Equipment 189 Accumulated Depreciation LIABILITIES 211 Accounts Payable 231 Salaries Payable 242 Estimated Rebate Liability 250 Unearned Revenue 261 Income Taxes Payable EQUITY 311 Common Stock 331 Retained Earnings	REVENUE 411 Sales Revenue EXPENSES 500 Cost of Goods Sold 511 Insurance Expense 512 Utilities Expense 521 Salaries Expense 532 Bad Debt Expense 540 Interest Expense 541 Depreciation Expense 559 Miscellaneous Expenses 910 Income Tax Expense

General Journal

Prepare the necessary journal entries to record:

	1. the sale of Fro-Yo containers for cash during 2017
	2. the redemption of labels during 2017
	3. the redemption of labels during 2018
	4. the recognition of the unredeemed labels at the end of 2018
	Additional Instructions

PAGE 9

GENERAL JOURNAL

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2
3
4
5
6
7
8
9

Next Level

Assume that 300,000 labels were redeemed in 2018. Prepare the journal entries related to the cash rebate offer for 2018.

PAGE 9

GENERAL JOURNAL

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2
3

Answer 1

Solution:

Cash rebate per yogurt = $5 for 10 yogurt label

So, $0.5 per yogurt label

Date	Particulars	Ref. No	Debit ($)	Credit ($)
	The sale of Fro-Yo containers for cash during 2017	1
2017	Limited time Expenses Dr		$500,000
	To Limited time Expenses payable ($5,000,000*20%*0.5)			$500,000
	The redemption of labels during 2017	2
2017	Limited time Expenses payable Dr		$400,000
	To cash ($800,000*0.5)			$400,000
Situation 1	The redemption of labels during 2018	3
2018	Limited time Expenses payable Dr		$75,000
	To Cash ($150,000*0.5)			$75,000
Situation 1
2018	Limited time Expenses payable Dr		$25,000
	To Limited time Expenses ($50,000*0.5)			$25,000
Situation 2	The recognition of the unredeemed labels at the end of 2018	4
2018 Revised	Limited time Expenses Dr ($100,000*0.5)		$50,000
	To Limited time Expenses payable			$50,000
	Limited time Expenses payable Dr		$150,000
	To Cash ($300,000*0.5)			$150,000