Question

Whispering Company offers an MP3 download (seven-single medley) as a premium for every 5 candy bar wrappers presented by customers together with $3.10. 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 $2.85. 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. (cash purchases)

2017                  2018

MP3 codes purchased.                                                  320,000            422,400

Candy bars sold.                                                         2,664,700.        2,554,300

Wrappers redeemed.                                                   1,536,000.       1,920,000

2017 wrappers expected to be redeemed in 2018           371,200

2018 wrappers expected to be redeemed in 2019                                 448,000

Indicate the amount for each account, 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.

Inventory of premiums:      2017?                     2018?

Answer 1

Account	2017	2017	Classification
Inventory of Premium	$      97,920.00	186,240.00	Current Asset
Premium Liability	$      18,560.00	22,400	Current Liability
Premium Expense	$   248,960.00	310,400.00	Operating Expense

Calculation of Premium
			2017		2018
	Wrappers Redemmed	1536000/5	$      307,200.00	1920000/5	$      384,000.00
	Postage [email protected]		$      875,520.00	[email protected]	$ 1,094,400.00
	TOTAL(A)		$ 1,182,720.00		$ 1,478,400.00
	Total Cash [email protected] (B)		$      952,320.00		$ 1,190,400.00
	Premium Expenses(A)-(B)		$      230,400.00		$      288,000.00

Journal Entries
2017	Inventory Premium	912,000.00
	Cash		912,000.00
	(320000*2.85)
2017	Cash	8,260,570.00
	Sales Revenue		8,260,570.00
	(2664700*3.1)
2017	Cash (1536000-952320)	583,680.00
	Premium Expenses	230,400.00
	Inventory Premium		814,080.00
2017	Premium Expenses	18560
	premium Liability		18560
	(371200/5)*(2.85+0.50-3.10)

Journal Entries
2018	Inventory Premium	1,203,840.00
	Cash		1,203,840.00
	(422400*3.5)
2018	Cash	7,918,330.00
	Sales Revenue		7,918,330.00
	2554300*3.1
2018	Cash (1920000-1190400)	729,600.00
	Premium Expenses	288,000.00
	Inventory Premium		1,017,600.00
2018	Premium Expenses	22,400
	premium Liability		22,400
	(448000/5)*(2.85+0.50-3.10)