2017 2018 (a) Account Titles and Explanation Debit Credit 2017 (To record the pr
ID: 2527283 • Letter: 2
Question
2017
2018
(a)
Account Titles and Explanation
Debit
Credit
2017
(To record the premium inventory.)
(To record the sales.)
(To record the expense associated with the sale.)
(To record the premium liability.)
2018
(To record the premium inventory.)
(To record the sales.)
(To record the expense associated with the sale.)
(To record the premium liability.)
Sage Company offers an MP3 download (seven-single medley) as a premium for every 5 candy bar wrappers presented by customers together with $2.70. 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 $2.45. 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. (All purchases and sales are for cash.)2017
2018
MP3 codes purchased 280,000 369,600 Candy bars sold 3,158,600 2,890,500 Wrappers redeemed 1,344,000 1,680,000 2017 wrappers expected to be redeemed in 2018 324,800 2018 wrappers expected to be redeemed in 2019 392,000Explanation / Answer
Workings:
2017:
No of MP3 = 1344000/5 = 268,880
Distribution Cost = 268,800 * $0.5 = $134,400
Cost of purchase = 268,880 * $2.45 = 658,560
Total Cost = $134,400 + 658,560 = $792,960
Cash received = $268,800 * 2.7 = 725,760
Premium = $792,960 - 725,760 = 67200
2018
No of MP3 = 1680000/5 = 336,000
Distribution Cost = 336,000 * $0.5 = $168,000
Cost of purchase = 336,000 * $2.45 = 823,200
Total Cost = $168,000+ 823,200 = $ 991,200
Cash received = $336,000 * $2.7 = 907,200
Premium = $ 991,200- 907,200= 84,000
Date Account Titles and Explanation Debit Credit 2017 Inventory of premium(280,000× $2.45) 686000 Cash 686000 (To record the premium inventory) Cash
(3,158,600×$.30) 947580 Sales revenue 947580 (To record the sales) Cash
(Bal.fig.) 591360 Premium expense 67200 Inventory of premium 658560 (To record the expense associated with sale) Premium expense
(324800/5)×(2.45+.50-2.70) 16240 Premium liability 16240 (To record the premium liability) 2018 Inventory of premium
(369,600×$2.45) 905520 Cash 905520 (To record the premium inventory) Cash
(2,890,500×$.30) 867150 Sales revenue 867150 (To record the sales) Cash(Bal. fig.) 655200 Premium expense 84000 Premium Liability 16240 Inventory of premium 755440 (To record the expense associated with sale) Premium expense
(392000/5)×(2.45+.50-2.70) 19600 Premium liability 19600 (To record the premium inventory)
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