Question 5 2014 2015 (a) Account Titles and Explanation Debit Credit 2014 (To re

Question

Question 5

2014

2015

(a)

Account Titles and Explanation

Debit

Credit

2014

(To record the pemium inventory.)

(To record the sales.)

(To record the expense associated with the sale.)

(To record the premium liability.)

2015

(To record the pemium inventory.)

(To record the sales.)

(To record the expense associated with the sale.)

(To record the premium liability.)

Question 5

Sycamore Candy Company offers an MP3 download (seven-single medley) as a premium for every 6 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 2014 and 2015 are as follows. (All purchases and sales are for cash.)

2014

2015

MP3 codes purchased 272,500 359,700 Candy bars sold 2,907,700 2,836,600 Wrappers redeemed 1,308,000 1,635,000 2014 wrappers expected to be redeemed in 2015 316,100 2015 wrappers expected to be redeemed in 2016 381,500

Explanation / Answer

Computation Of Premium

Wrapper reddem

2014 = 1308,000/6

2015=1635,000/6

@2.85

2014 =218000*2.85

2015=272500*2.85

Postage

2014 =218000*05

2015=272500*0.5

Cash receives

2014=218000*3.10

2015=2725000*3.10

Premium Expeses

2014=(675800-948300)

2015=(844750-1185375)

(a) Prepare the journal entries that should be made in 2014 and 2015 to record the transactions related to the premium plan

Inventory Premium

(272500*2.85)

To Sales Revenue

(2907700*3.10)

Cash

(1308000-675800)

272500

Premium Expenses

(316100/6)*(2.85+50-3.10)

13170

Now entries for 2015

Inventory Premium

(359700*2.85)

To Sales Revenue

(2836600*3.10)

Cash

(1635000-844750)

340625

Premium Expense

(381500/6)*(2.85+50-3.10)

15896

2014 2015

Wrapper reddem

2014 = 1308,000/6

2015=1635,000/6

218,000 272500

@2.85

2014 =218000*2.85

2015=272500*2.85

621300 776625

Postage

2014 =218000*05

2015=272500*0.5

109000 136250 Total 948300 1185375

Cash receives

2014=218000*3.10

2015=2725000*3.10

675800 844750

Premium Expeses

2014=(675800-948300)

2015=(844750-1185375)

(272500) (340625)

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