Whispering Company offers an MP3 download (seven-single medley) as a premium for

Question

Whispering Company offers an MP3 download (seven-single medley) as a premium for every 5 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 2017 and 2018 are as follows. (cash purchases)

2017                  2018

MP3 codes purchased.                                                  320,000            422,400

Candy bars sold.                                                         2,664,700.        2,554,300

Wrappers redeemed.                                                   1,536,000.       1,920,000

2017 wrappers expected to be redeemed in 2018           371,200

2018 wrappers expected to be redeemed in 2019                                 448,000

Indicate the amount for each account, 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 2017 and 2018.

Inventory of premiums:      2017?                     2018?

Explanation / Answer

Account 2017 2017 Classification Inventory of Premium $      97,920.00          186,240.00 Current Asset Premium Liability $      18,560.00 22,400 Current Liability Premium Expense $   248,960.00          310,400.00 Operating Expense Calculation of Premium 2017 2018 Wrappers Redemmed 1536000/5 $      307,200.00 1920000/5 $      384,000.00 Postage 307200@2.85 $      875,520.00 384000@2.85 $ 1,094,400.00 TOTAL(A) $ 1,182,720.00 $ 1,478,400.00 Total Cash Received@3.10 (B) $      952,320.00 $ 1,190,400.00 Premium Expenses(A)-(B) $      230,400.00 $      288,000.00 Journal Entries 2017 Inventory Premium        912,000.00 Cash          912,000.00 (320000*2.85) 2017 Cash    8,260,570.00 Sales Revenue      8,260,570.00 (2664700*3.1) 2017 Cash (1536000-952320)        583,680.00 Premium Expenses        230,400.00 Inventory Premium          814,080.00 2017 Premium Expenses 18560 premium Liability 18560 (371200/5)*(2.85+0.50-3.10) Journal Entries 2018 Inventory Premium     1,203,840.00 Cash    1,203,840.00 (422400*3.5) 2018 Cash     7,918,330.00 Sales Revenue    7,918,330.00 2554300*3.1 2018 Cash (1920000-1190400)         729,600.00 Premium Expenses         288,000.00 Inventory Premium    1,017,600.00 2018 Premium Expenses 22,400 premium Liability 22,400 (448000/5)*(2.85+0.50-3.10)

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