Question 1) Sycamore Candy Company offers a CD single as a premium for every 5 c
ID: 2503834 • Letter: Q
Question
Question 1)
Sycamore Candy Company offers a CD single as a premium for every 5 candy bar wrappers presented by customers together with $2.50. The candy bars are sold by the company to distributors for 30 cents each. The purchase price of each CD to the company is $2.25; in addition, it costs 50 cents to mail each CD. The results of the premium plan for the years 2012 and 2013 are as follows. (All purchases and sales are for cash.)
2012
2013
CDs purchased
392,500
518,100
Candy bars sold
2,994,800
2,826,100
Wrappers redeemed
1,884,000
2,355,000
2012 wrappers expected to be redeemed in 2013
455,300
2013 wrappers expected to be redeemed in 2014
549,500
(a) Prepare the journal entries that should be made in 2012 and 2013 to record the transactions related to the premium plan of the Sycamore Candy Company.
(b) 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 2012 and 2013.
Question 2
Presented below are three independent situations. Answer the question at the end of each situation.
a. During 2012, Maverick Inc. became involved in a tax dispute with the IRS. Maverick
2012
2013
CDs purchased
392,500
518,100
Candy bars sold
2,994,800
2,826,100
Wrappers redeemed
1,884,000
2,355,000
2012 wrappers expected to be redeemed in 2013
455,300
2013 wrappers expected to be redeemed in 2014
549,500
Explanation / Answer
1) In Australia the AASB accounting standards apply, which are based on international accounting standards board. so this response will most likely be helpful.
Financial documents are required to represent a true and fair view of the financial position of a business with regards to business relating the that financial year. As the dispute occurred during the 2010 financial year, it should definitely be include somewhere in the 2010 financial documents. This is further reinforced as the business believes that they will have to pay at least 800 000
it is up to management regarding the treatment of the case but the most appropriate solution would be to create a liability account for the full amount (1 400 000). With a reference to the notes. within the notes, the case would be explained and it would be outlined very clearly that the payment has not been made.
b) The contingency should be recorded, similar to the sale of an asset. Include in the income statement a gain on sale, reported at as conservative amount. The asset is then written off at the corresponding amount
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