Question

Teal Company offers an MP3 download (seven-single medley) as a premium for every 5 candy bar wrappers presented by customers together with $2.90. 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 $2.65. 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		300,000		396,000
Candy bars sold		2,803,800		2,967,500
Wrappers redeemed		1,440,000		1,800,000
2017 wrappers expected to be redeemed in 2018		348,000
2018 wrappers expected to be redeemed in 2019				420,000

Prepare the journal entries that should be made in 2017 and 2018 to record the transactions related to the premium plan of the Teal 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.)

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.

Answer 1

inventory of premium (300000*2.65)			795000
cash				795000
( to record the premium of inventory)
cash (2803800*0.30)			841140
sales revenue				841140
( to record sales)
1440000/5 = 288000
cash (288000*(2.90-0.50)			691200
premium expenses(288000*2.65+0.50-2.90)			72000
inventory of premium (288000*2.65)				763200
( to record exp of sale )
premium expenses (348000/5)*(2.65+0.50-2.90)			17400
premium laibility				17400
( to record the premium laibility)
journal entrie 2018
particulars			Debit	Credit
inventory of premium (396000*2.65)			1049400
cash				1049400
( to record the premium of inventory)
cash (2967500*0.30)			890250
sales revenue				890250
( to record sales)
1800000/5 = 360000
cash (360000*(2.90-0.50)			864000
premium expenses(360000*2.65+0.50-2.90)			90000
inventory of premium (360000*2.65)				954000
( to record exp of sale )
premium expenses (420000/5)*(2.65+0.50-2.90)			21000
premium laibility				21000
( to record the premium laibility)
B)
Computation of premium exp			2017
CDS 1440000/5			288000
288000*2.65			763200
postage 288000*0.5			144000
			907200
less : cash received 288000*2.90			835200
premium exp			72000
Computation of premium exp			2017
CDS 1800000/5			360000
360000*2.65			954000
postage (360000*0.50)			180000
			1134000
less: cash received 360000*2.90			1044000
premium expenses			90000
particulars			2017	2018	Item will appear in
premium of inventory(300000-288000)2.65			31800	95400	balancesheet as current laibility
12000+(396000-360000)*2.65
premium laibility			17400	21000	balancesheet as current laibility
premium expenses			89400	111000	income statement - operating exp(selling)
			17400+72000	90000+21000
premium of inventory = ( purchase- redeemed)