Wynn
Corp. offers a set of building blocks to customers who send in three UPC codes
from Wynn cereal, along with $0.50. The block sets cost Wynn $1.10 each to
purchase and $0.60 each to mail to customers. During 2011, Wynn sold 1.2
million boxes of cereal. The company expects 30% of the UPC codes to be sent
in. During 2011, 120,000 UPC codes were redeemed. Prepare Wynn’s December 31,
2011 adjusting entry.
|
Premium Expense........................
|
96,000
|
|
|
Estimated
Liability for Premiums..
|
|
96,000
|
|
|
|
|
|
UPC codes expected to be sent in.......
|
|
360,000
|
|
(30% X 1,200,000)
|
|
|
|
UPC codes already redeemed.............
|
|
120,000
|
|
Estimated future redemptions...........
|
|
240,000
|
|
Cost of estimated claims outstanding...
|
|
$
96,000
|
|
(240,000 ¸ 3) X ($1.10 + $0.60 – $0.50)
|
|
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