*Problem 13-12 x Your answer is incorrect. Try again. Larkspur Music Emporium ca
ID: 2531058 • Letter: #
Question
*Problem 13-12 x Your answer is incorrect. Try again. Larkspur Music Emporium carries a wide variety of musical instruments, sound reproduction equipment, recorded music, and sheet music. Larkspur uses two sales promotion techniques-warranties and premiums-to attract customers. Musical instruments and sound equipment are sold with a one-year warranty for replacement of parts and labor. The estimated warranty cost, based on past experience, is 2% of sales. The premium is offered on the recorded and sheet music. Customers receive a coupon for each dollar spent on recorded music or sheet music. Customers may exchange 200 coupons and $30 for an MP3 player. Larkspur pays $43 for each player and estimates that 70% of the coupons given to customers will be redeemed. Larkspur's total sales for 2017 were $7,892,000-$5,432,000 from musical instruments and sound reproduction equipment and $2,460,000 from recorded music and sheet music. Replacement parts and labor for warranty work totaled $154,400 during 2017. A total of 7,120 players used in the premium program were purchased during the year and there were 1,116,000 coupons redeemed in 2017. The balances in the accounts related to warranties and premiums on January 1, 2017, were as shown below. Inventory of Premiums Premium Liability Warranty Liability $ 36,880 43,040 138,900 Larkspur Music Emporium is preparing its financial statements for the year ended December 31, 2017. Determine the amounts that will be shown on the 2017 financial statements for the following. (Round answers to o decimal places, e.g. 125.) (a) Warranty Expense 266480 (b) Warranty Liability (c) Premium Expense (d) Inventory of Premiums (e) Premium LiabilityExplanation / Answer
a.Warranty Expenses = 2% of sale from musical instruments
= 2% of $54,32000
= $1,08,640
b.Warranty Liability = Op. balance of Warranty Liability
+ 2017 Warranty Expenses
-Payment of warranty during 2017
Hence, Warranty Liability = 138900 + 108640 – 154000
= $93,540
c.Premium Expenses= (24,60,000 coupons * 70% redemption rate)/100 coupons per MP3 * ($43cost of MP3 -$30 cash)
= $17220 * $13
= $2,23,860
d.Inventory of premium= Opening Balance + Balance premium Coupons
= $36,880 + [ total coupons - Purchased Coupans]
= $36,880 + ($2,23,860 – $1,01,556)
= $1,59,184
e.Premium Liability = Op. balance of premium liability
+ 2017 premium expenses
-Payment of premium during 2017
Hence, Premium Liability = 43040 + 223860 - [(1116000 coupons *70%Redemption rate)/100 coupons per mp3 * ($43 cost of MP3 - $30 Cash)
Premium Liability = 43040 + 223860 – 101556
= $1,65,344
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