On January 1, 2017, Fro-Yo Inc. began offering customers a cash rebate of $5.00
ID: 2598923 • Letter: O
Question
On January 1, 2017, Fro-Yo Inc. began offering customers a cash rebate of $5.00 if the customer mails in 10 proof-of-purchase labels from its frozen yogurt containers. Based on historical experience, the company estimates that 20% of the labels will be redeemed. During 2017, the company sold 5,000,000 frozen yogurt containers at $1, cash, per container. From these sales, 800,000 labels were redeemed in 2017, 150,000 labels were redeemed in 2018, and the remaining labels were never redeemed.
Required:
1. Prepare the journal entries related to the sale of frozen yogurt and the cash rebate offer for 2017 and 2018. 2. Next Level Assume that 300,000 labels were redeemed in 2018. Prepare the journal entries related to the cash rebate offer for 2018.Explanation / Answer
Cash rebate per yogurt = $5 for 10 ygurt label, so $0.5 for per yogurt label Date Account Title & Explanation Debit Credit Amount in $ Amount in $ Same entry in both situation 2017 Promotional expenses 500000 =5000000*20%*0.5 Promotional expense Payable 500000 To record the provision of promotional expenses Same entry in both situation Promotional expense Payable 400000 Cash 400000 To record the cash payment of promotinal expense situation 1 2018 Promotional expense Payable 75000 Cash 75000 To record the cash payment of promotinal expense situation 2 2018 Revised Promotional expenses 75000 Promotional expense Payable 75000 To record the additional provision for promotion expenses Promotional expense Payable 150000 Cash 150000 To record the cash payment of promotinal expense
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