Question

The Jack Lalanne Company manufactures a high protein energy bar sold exclusively at major
league baseball games. To increase sales they offer an official major league baseball as a
promotion when a customer remits 4 sports bar wrappers along with $2.00.
The sports bars are sold at major league games for $3.00 each. It costs the company $1.60 for
each baseball, and an additional $.80 to process and ship each ball to customers. Results of the
promotion during the 2017 baseball season (including the World Series) are shown below, all
transactions are for cash:
Baseballs Purchased………………….….……… 17,000
Sports Bars sold…………………………………… 93,500
Wrappers redeemed in 2017……….…..… 59,400
2017 season wrappers expected
to be redeemed in early 2018………….… 7,800
Required:
a. Prepare all journal entries that should be made in the 2017 season related to the
protein energy bar sales and premium promotion of the Jack Lalanne Company.
b. Indicate the account names, their balances, and their classification related to the
premium promotion that should appear on the balance sheet as of December 31, 2017,
and the income statement for the year ending December 31, 2017.

Answer 1

a.

No.	General Journal	Debit	Credit
1	Inventory of Premiums (17000 x $1.60)	27200
	Cash		27200
	(To record the purchase of premium inventory)
2	Cash (93500 x $3.00)	280500
	Sales Revenue		280500
	(To record the sales)
3	Cash [59400/4 = 14850 x ($2.00 - $0.80)]	17820
	Premium Expense [14850 x ($1.60 + $0.80 - $2.00)]	5940
	Inventory of Premiums (14850 x $1.60)		23760
	(To record the expense associated with the sale)
4	Premium Expense	780
	Premium Liability [7800/4 = 1950 x ($1.60 + $0.80 - $2.00)]		780
	(To record the premium liability)

b.

Account	Amount	Classification
Inventory of Premiums	$       3,440	Current asset
Premium Liability	$           780	Current liability
Premium Expense	$       6,720	Promotional/Selling expenses