Moon Company includes 1 coupon in each box of soap powder that it packs, 10 coup
ID: 2586979 • Letter: M
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.
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
2017 Premium Inventory 48000 Cash(or Accounts Payable) 48000 (48000X1) Cash (or Accounts Receivable) . 2880000 Sales Revenve. 2880000 (720,000*4) Premium Expense . 19200 Premium Inventory 19200 192,000/10*1 Premium Expense 24000 Premium Liability 24000 {[(720,000*.6)-192000]/10}*1 = 24000 premiums 2018 Premium Inventory 42900 Cash(or Accounts Payable) 42900 (39000*1.1) Cash (or Accounts Receivable) . 6400000 Sales Revenve. 6400000 (1,600,000 *4) Premium Expense . 24000 Premium Inventory 24000 (24000*1) balance of 2017 coupons redeemed Premium Expense 45720 Premium Liability 45720 (48000-19200-24000 = 4800*1) Premium Inventory (2017) (660,000/10=66000-(4800+24000)=37200*1.1 =40920 Premium Expense . 54,120 Premium Liability . 54,120 [Total 2017 coupons estimated to be redeemed 1,600,000 *0.6 960,000 Coupons redeemed in 2017 660,000 Coupons redeemed in 2018 attributable to 2017 (192,000) 468,000 Coupons estimated to be redeemed subsequentto 2017 492,000 Estimated liability 492000/10 =49200*1.1 54,120
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