Ex 13-151-Premiums Irwin Music Shop gives its customers coupons redeemable for a

Question

Ex 13-151-Premiums Irwin Music Shop gives its customers coupons redeemable for a poster plus a Bo Diddley CD One coupon is issued for each dollar of sales. On the surrender of 100 coupons and $5.00 cash the poster and CD are given to the customer. It is estimated that 80% of the coupons will be presented for redemption. Sales for the first period were $700,000, and the coupons redeemed totaled 420,000. Sales for the second period were $840,000, and the coupons redeemed totaled 750,000. Irwin Music Shop bought 20,000 posters at $2.00/poster and 20,000 CDs at $6.00/CD Instructions Prepare the following entries for the two periods, assuming all the coupons expected to be redeemed from the first period were redeemed by the end of the second period

Explanation / Answer

For a ) Premuim expense is (750,000/100*3)                 = $22,500

Liability   already created                                                =   (4,200)

Premium expense to be recorded                                 = $18,300

b) For estimated liablity

In first year (700,000 * 8 = 560,000 was estimated however only 420,000 redeemed so left 140,000 from first sale

From second sale ( 840,000*8 = 672000 ) total required 672,000 + 140,000 = 812,000

812,000 - 750,000 redeemed = left 62,000

so we need to create liability for 62,000

hence 62,000 /100 *3               = $1,860

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.