Moon Company includes 1 coupon in each box of soap powder that it packs, 10 coup

Question

Moon Company includes 1 coupon in each box of soap powder that it packs, 10 coupons being redeemable for a premium consisting of a kitchen utensil. In 2017, Moon Company purchased 48,000 premiums at $1.00 each and sold 720,000 boxes of soap powder @ $4.00 per box. Based on past experience, it is estimated that 60% of the coupons will be redeemed. During 2017, 192,000 coupons were presented for redemption.

During 2018, 39,000 premiums were purchased at $1.10. The company sold 1,600,000 boxes of soap at $4.00 and 660,000 coupons were presented for redemption.

Instructions

Prepare all the entries that would be made relative to sales of soap powder and to the premium plan in both 2017 and 2018. Assume a FIFO inventory flow.

Explanation / Answer

General Journal Debit Credit Inventory Premiums 48000 Cash 48000 48000*1 Cash 2880000 Sales 2880000 720000*4 Premium Expense 19200 Inventory Premiums 19200 192,000/10*1 Premium Expense 24000 EsTmated Liability Premiums 24000 (720,000 *60%-192,000)/10

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