Question

To increase the sales of its Sugar Kids breakfast cereal, Blue Spruce Foods Limited places one coupon in each cereal box. Five coupons are redeemable for a premium consisting of a child’s hand puppet. In 2017, Blue Spruce purchases 41,800 puppets at $1.75 each and sells 491,000 boxes of Sugar Kids at $3.00 a box. Blue Spruce estimates that $0.20 of the sale price relates to the hand puppet to be awarded. From its experience with other similar premium offers, Blue Spruce estimates that 40% of the coupons issued will be mailed back for redemption. During 2017, 114,000 coupons are presented for redemption. Blue Spruce is a private company following ASPE.

a) Prepare the journal entries that should be recorded in 2017 relative to the premium plan, assuming that Blue Spruce follows a policy of charging the cost of coupons to expense as they are redeemed and adjusting the liability account at year end. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

b) Prepare the journal entries that should be recorded in 2017 relative to the premium plan, assuming that Blue Spruce follows a policy of charging the full estimated cost of the premium plan to expense when the sales are recognized. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

​c) How would the accounts resulting from the entries in parts above be presented on the 2017 financial statements?

d) Prepare the journal entries that should be recorded in 2017 relative to the premium plan, assuming that Blue Spruce follows IFRS and accounts for its promotional programs in accordance with the revenue approach and IFRIC 13. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

e) How would the accounts resulting from the entries in part (d) above be presented on the 2017 financial statements?

Answer 1

Blue Spruce Foods Limited

(a)

1.

Cash A/c Dr. 1437000

To Coupon A/c 98200

To Sugar Cerals 1374800

2.

Puppet Purchase A/c Dr 73150

To Cash 73150

3.

Coupon A/c Dr 68740

To Liability A/c 68740

4.

Liability A/c Dr 39900

To Puppet A/c 39900

(b)

Cash A/c Dr 1473000

To Sugar Cerals sales 1374800

To Coupon Sales 98200

2.

Puppet Purchase A/c Dr 73150

To Cash 73150

3.

P&l A/c Dr 73150

To Puppet A/c 73150

(c)

(i)

Cash 1999850 Dr

Coupon 29460 Cr

Liability 28840 Cr

Puppet A/c 33250 Dr

Cerals Sales A/c 1374800 Cr

Coupon Sales A/c 98200 Cr

(ii)

Cash 1399850

Ceraals Sales 1374800 Cr

Coupon Sales 98200 Cr

Puppet Purchase 73150 Dr

(d)

Cash A/c dr 1473000

To Ceral Sales 1473000

2.

Cerals Sales A/c Dr 98200

To Award Credit 98200

3.

Puppet Purchase A/c dr 73150

To cash 73150

4.

Award Credit A/c Dr 39900

To Puppet A/c 39900

(e)

cash 1399850

Award Credit 58300 Cr

Puppet 33250 Dr

Working & Notes

1. All Amounts are in USD

2. Sales Consideration 491000 Boxes X 3.00 $1473000

3. Elegible Puppet 491000 / 5 98200

4. puppet Cost 41800 x 1.75 $73150

So above is the answer to the problem

1.