Pr. 13-155-Premiums Kane Candy Company offers a coffee mug as a premium for ever

Question

Pr. 13-155-Premiums Kane Candy Company offers a coffee mug as a premium for every ten $1 candy bar wrappers resented by customers together with $2. The purchase price of each mug to the company is $1.80; in addition it costs $1.20 to mail each mug. The results of the premium plan for the years 2014 and 2015 are as follows (assume all purchases and sales are for cash) Coffee mugs purchased Candy bars sold Wrappers redeemed 2014 wrappers expected to be redeemed in 2015 2015 wrappers expected to be redeemed in 2016 -2014 720,000 800,000 5,600,000 6,750,000 4,200,000 2,800,000 2,000,000 4,2 2,700,000 Instructions (a) Prepare the general journal entries that should be made in 2014 and 2015 related to the above plan by Kane Candy Indicate the account names, amounts, and classifications of the items related to the premium plan that would appear on the Kane Candy Company balance sheet and income (b) statement at the end of 2014 and 2015 Solution 13-155 2014 Inventory of Premiums.. 1,296,000 Cash. 1,296,000 (720,000 x $1.80 = $1,296,000) Cash 5,600,000 Sales Revenue 5,600,000 (5,600,000 x $1 = $5,600,000) Cash Premium Expense 224,000 280,000 504,000 Inventory of Premiums Mutt . [2,800,000 +10-280,000 ($2.00-$1.20,-$224 000 280,000× $1.80=$504,000] %) Premium Expense --> Ir .. 200,000 200,000 20000 $1 Premiums Liability $1 = $200,000) 2015 (2,000,000 ÷ 10 = 200,000 .1,440,000 Inventory of Premiums 1,440,000 Cash (800,000 x $1.80 = $1,440,000) 6,750,000 Cash 6, 6,750,000 (6,750,000 x $1 = $6,750,000) sad

Explanation / Answer

Premium expense for 220,000

in 2014

We estimated that 2,000,000 wrappers will redeemed in 2015 so we recorded 2,000,000 wrapers premium expenses in 2014 only i,e 200,000 in 4th entry of 2014

in 2015

we redeemed 4,200,000 wrappers but out of these we anticipated 2,000,000 wrappers in 2014 and already booked there expense in 2014 so remaining wrappers of 4,200,000 - 2,000,000 = 2,200,000 wrappers whose expense is 2,200,000 / 10 X $ 1 = 220,000 is booked in 2015.

2nd querry

The liability is booked at $1

Premium Cost to Company = Cost of Mug + Cost of mail - receive from Customer

= $ 1.80 + $ 1.20 - $ 2

= $ 1

Thats why al the future liability is booked at $ 1 in both 2014 & 2015

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.