Prepare the journal entries that should be made in 2014 and 2015 to record the transactions related to the premium plan of the Sycamore Candy Company.
Sycamore Candy Company offers an MP3 download (seven-single medley) as a premium for every 6 candy bar wrappers presented by customers together with $3.10. 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 $2.85. In addition, it costs 50 cents to distribute each code. The results of the premium plan for the years 2014 and 2015 are as follows. (All purchases and sales are for cash.)
| 2014 | 2015 | |||
| MP3 codes purchased | 272,500 | 359,700 | ||
| Candy bars sold | 2,907,700 | 2,836,600 | ||
| Wrappers redeemed | 1,308,000 | 1,635,000 | ||
| 2014 wrappers expected to be redeemed in 2015 | 316,100 | |||
| 2015 wrappers expected to be redeemed in 2016 | 381,500 |
Computation Of Premium
| 2014 | 2015 | |
| Wrapper reddem
2014 = 1308,000/6 2015=1635,000/6 |
218,000 | 272500 |
| @2.85
2014 =218000*2.85 2015=272500*2.85 |
621300 | 776625 |
| Postage
2014 =218000*05 2015=272500*0.5 |
109000 | 136250 |
| Total | 948300 | 1185375 |
| Cash receives
2014=218000*3.10 2015=2725000*3.10 |
675800 | 844750 |
| Premium Expeses
2014=(675800-948300) 2015=(844750-1185375) |
(272500) | (340625) |
(a) Prepare the journal entries that should be made in 2014 and 2015 to record the transactions related to the premium plan
| Year | Description | Debit | Crdit |
| 2014 | Inventory Premium
(272500*2.85) |
776625 | |
| To cash | 776625 | ||
| 2014 | Cash | 9013870 | |
| To Sales Revenue
(2907700*3.10) |
9013870 | ||
| 2014 | Cash
(1308000-675800) |
632200 | |
| Premium Expenses | 272500 | ||
| I | Inventory of premium | 904700 | |
| 204 | Premium Expenses
(316100/6)*(2.85+50-3.10) |
13170 | |
| To premium Liabelity | 13170 |
Now entries for 2015
| Year | Description | Debit | Crdit |
| 2015 | Inventory Premium
(359700*2.85) |
1025145 | |
| To cash | 1025145 | ||
| 2015 | Cash | 8793460 | |
| To Sales Revenue
(2836600*3.10) |
8793460 | ||
| 2015 | Cash
(1635000-844750) |
790250 | |
| Premium Expenses | 340625 | ||
| I | Inventory of premium | 1130875 | |
| 2015 | Premium Expense
(381500/6)*(2.85+50-3.10) |
15896 | |
| To premium Liabelity | 15896 |
