Moleski Corporation
includes one coupon in each box of soap powder that it packs, and 10 coupons
are redeemable for a premium (a kitchen utensil). In 2011, Moleski Corporation
purchased 8,800 premiums at $0.90 each and sold 120,000 boxes of soap powder at
$3.30 per box. In total, 44,000 coupons were presented for redemption in 2011.
It is estimated that 60% of the coupons will eventually be presented for
redemption.
Instructions
(a) Prepare all the
entries that would be made for sales of soap powder and for the premium plan in
2011.
(b) What amounts
relative to soap powder sales and premiums would be shown on Moleski's
financial statements for 2011?
(a)
|
Inventory
of Premiums (8,800 X $0.90).
|
7,920
|
|
|
Cash..............................
|
|
7,920
|
|
|
|
|
|
Cash
(120,000 X $3.30)................
|
396,000
|
|
|
Sales.............................
|
|
396,000
|
|
|
|
|
|
Premium
Expense.......................
|
3,960
|
|
|
Inventory of Premiums.............
|
|
3,960
|
|
[(44,000 ¸ 10) X $0.90]
|
|
|
|
|
|
|
|
Premium
Expense.......................
|
2,520
|
|
|
Estimated Liability for Premiums..
|
|
2,520
|
|
[(120,000 X 60%) – 44,000] ¸
10 X $0.90
|
|
|
(b) Balance Sheet:
Current Assets:
Inventory of Premiums ($7,920 – $3,960) $3,960
Current Liabilities:
Estimated Liability for Premiums 2,520
Income Statement:
Sales $396,000
Less: Premium Expense ($3,960 + $2,520) (6,480)
