To stimulate the sales of its Alladin breakfast cereal, Teal Company places 1 co
ID: 2607448 • Letter: T
Question
To stimulate the sales of its Alladin breakfast cereal, Teal Company places 1 coupon in each box. 5 coupons are redeemable for a premium consisting of a children’s hand puppet. In 2018, the company purchases 41,000 puppets at $1.55 each and sells 491,000 boxes of Alladin at $3.80 a box. From its experience with other similar premium offers, the company estimates that 40% of the coupons issued will be mailed back for redemption. During 2018, 138,000 coupons are presented for redemption.
Prepare the journal entries that should be recorded in 2018 relative to the premium plan. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 1,525.)
Account Titles and Explanation
Debit
Credit
(To record the premium inventory.)
(To record the sales.)
(To record the expense associated with the sale.)
(To record the premium liability.)
Account Titles and Explanation
Debit
Credit
(To record the premium inventory.)
(To record the sales.)
(To record the expense associated with the sale.)
(To record the premium liability.)
Explanation / Answer
Solution:
Debit
Credit
1
Dr. Premium puppets inventory
63,550
Cr. Cash
63,550
(41,000 puppets at $1.55 each)
2
Dr. Cash
1,865,800
Cr. Sales
1,865,800
(491,000 boxes of Alladin at $3.80)
3
Dr. Premium Expense
42,780
Cr. Premium puppets inventory
42,780
(138,000 / 5 * $1.55)
4
Dr. Premium expense
16,988
Cr. Estimated Liability for Premiums
16,988
Working:
Total coupons issued
491,000
Total estimated redemptions
196400
Coupons redeemed
-138000
Estimated future redemptions
58400
Cost of estimated claims outstanding
16,988
Debit
Credit
1
Dr. Premium puppets inventory
63,550
Cr. Cash
63,550
(41,000 puppets at $1.55 each)
2
Dr. Cash
1,865,800
Cr. Sales
1,865,800
(491,000 boxes of Alladin at $3.80)
3
Dr. Premium Expense
42,780
Cr. Premium puppets inventory
42,780
(138,000 / 5 * $1.55)
4
Dr. Premium expense
16,988
Cr. Estimated Liability for Premiums
16,988
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