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