1. A company offers a coffee mug as a premium for every ten $1 candy bar wrapper

ID: 2499279 • Letter: 1

Question

1. A company offers a coffee mug as a premium for every ten $1 candy bar wrappers presented 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):

2014:
Coffee mugs purchased = 720,000
Candy bars sold = 5,600,000
Wrappers redeemed = 2,800,000
2014 wrappers expected to be redeemed in 2015 = 2,000,000

2015:
Coffee mugs purchased = 800,000
Candy bars sold = 6,750,000
Wrappers redeemed = 4,200,000
2015 wrappers expected to be redeemed in 2016 = 2,700,000

The company should report an Inventory of Premiums amount of _________ on its balance sheet at the end of 2014.

A. $792,000

B. $200,000

C. $756,000

D. None of these answers are correct

E. $270,000

2. At the end of its first year of operations, Company A had a trading portfolio consisting of 3 securities as follows:

Apple Corporation:
Cost = $46,400
Market Value = $50,000

Bubble Company:
Cost = $60,000
Market Value = $55,800

Car Company:
Cost = $80,000
Market Value = $76,000

- In the following year, Company A sold the Bubble Company stock for $56,000 cash.
Company A should recognize a ___________ on the sale.

A. None of these answers are correct

B. loss of $4,000

C. loss of $4,200

D. gain of $1,200

E. gain of $200

3. Company Z has the following two securities in its trading portfolio at the end of the year:

Common Stock A:
Cost = $10,000
Market Value = $12,000

Common Stock B:
Cost = $8,000
Market Value = $5,000

At the end of the year, Company Z should:

A. set up a Fair Value Adjustment account for Stock B.

B. report a loss on the income statement for $3,000 under "Other expenses and losses."

C. None of these answers are correct

D. set up a Fair Value Adjustment account for the portfolio.

E. recognize an Unrealized Gain or Loss—Income for $3,000.

Explanation / Answer

Calculation of Inventory of Premiums amount of on its balance sheet at the end of 2014:

Coffee mugs purchased

720,000

Wrappers redeemed

2,800,000

Number of wrappers required for one mug

Coffee mugs given = 2800000 /10

280,000

Coffee mugs in the inventory = 720000-280000 =

440,000

Purchase price of each mug

$ 1.80

Inventory of Premiums amount of on its balance sheet at the end of 2014 = 440000 * 1.80 =

$ 792,000