Question

Problem 13-9 (Part Level Submission) Shamrock Company offers an MP3 download (seven-single medley) as a premium for every 6 candy bar wrappers presented by customers together with $2.70. 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 $2.45. 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 375,000 495,000 Candy bars sold 2,635,900 2,550,500 Wrappers redeemed 1,800,000 2,250,000 2017 wrappers expected to be redeemed in 2018 435,000 2018 wrappers expected to be redeemed in 2019 525,000 (a) Your answer has been saved and sent for grading. See Gradebook for score details. Prepare the journal entries that should be made in 2017 and 2018 to record the transactions related to the premium plan of the Shamrock 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.) 2018 (To record the premium inventory.) (To record the sales.) (To record the expense associated with the sale.) (To record the premium liability.) Click if you would like to Show Work for this question: Open Show Work SHOW LIST OF ACCOUNTS Attempts: 1 of 1 used (b) Indicate the amounts for each accounts, and classifications of the items related to the premium plan that would appear on the balance sheet and the income statement at the end of 2017 and 2018. Amount Account 2017 2018 Classification Inventory of Premiums $ $ Property, Plant and EquipmentSelling ExpenseStockholders' EquityCurrent LiabilityCurrent AssetLong-term Investments Premium Liability Property, Plant and EquipmentLong-term InvestmentsSelling ExpenseCurrent AssetStockholders' EquityCurrent Liability Premium Expense Property, Plant and EquipmentCurrent AssetCurrent LiabilityLong-term InvestmentsStockholders' EquitySelling Expense Click if you would like to Show Work for this question: Open Show Work

Answer 1

Solution:

A)

Journal entry for the year 2017:

Date	Account title and explanation	Debit	Credit
a	Inventory or premium (375,000*2.45)	$918,750
	Cash		$918,750
	(To record the premium inventory)
b	Cash(2,635,900*0.30)	$790,770
	Sales revenue		$790,770
	(To record the sale)
c	Cash(1,800,000/6)*(2.70- 0.50)	$660,000
	Premium expense(1,800,000/6)*(2.45+0.5-2.7)	$75,000
	Inventory of premium		$735,000
	(To record the expense associated with sale)
d	Premium expense(435,000/6)*(2.45 +0.5-2.7)	$18,125
	Premium liability		$18,125
	(To record the premium liability)

Journal entry for the year 2018:

Date	Account title and explanation	Debit	Credit
a	Inventory or premium (495,000*2.45)	$1,212,750
	Cash		$1,212,750
	(To record the premium inventory)
b	Cash(2,550,500*0.30)	$765,150
	Sales revenue		$765,150
	(To record the sale)
c	Cash(2,250,000/6)*(2.70- 0.50)	$825,000
	Premium liability	$18,125
	Premium expense(2,250,000/6)*(2.45+0.5-2.7) -$18,125	$75,625
	Inventory of premium		$918,750
	(To record the expense associated with sale)
d	Premium expense(525,000/6)*(2.45 +0.5-2.7)	$21,875
	Premium liability		$21,875
	(To record the premium liability)

B)

Indicate the amounts for each accounts, and classifications of the items related to the premium plan that would appear on the balance sheet and the income statement at the end of 2017 and 2018.

Account	2017	2018	Classification
Inventory	$183,750 (918,750 -735,000)	$477,750 (1,212,750 - 918,750 +183,750)	Current assets
Premium liability	$18,125	$21,875	Current liability
Premium expense	$93,125 ($18,125 +$75,000)	$97,500 (21,875+75,625)	Selling expense

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