1.
Prepare the journal entries in the books of Company TC for 2019.
1.
Explanation of Solution
Prepare the
Date | Account Titles and Explanations | Debit ($) | Credit ($) |
2019 | Inventory of premiums | 300,000 | |
Cash | 300,000 | ||
(To record the purchase of toy trucks) |
Table (1)
Prepare the journal entry to record the sales:
Date | Account Titles and Explanations |
Debit ($) | Credit ($) |
2019 | Cash or | 9,000,000 | |
Sales | 9,000,000 | ||
(To record the sales) |
Table (2)
Prepare the journal entry to record the estimate of total premium liability:
Date | Account Titles and Explanations | Debit ($) | Credit ($) |
2019 | Premium expenses (2) | 75,000 | |
Estimated premium liability | 75,000 | ||
(To record the recognition of estimated premium liability) |
Table (3)
Working note (1):
Calculate the total box tops estimated for redemption:
Particulars | Amount ($) | Amount ($) |
Total box tops outstanding in 2019 (A) | 5,000,000 | |
Estimated percent redeemed (B) | 60% | |
Total coupons estimated for redemption (C) | $3,000,000 |
Table (4)
Working note (2):
Calculate the amount of premium expenses:
Prepare the journal entry to record the redemption of 2,200,000 coupons in 2019:
Date | Account Titles and Explanations | Debit ($) | Credit ($) |
2019 | Cash | 220,000 | |
Estimated premium liability | 55,000 | ||
Inventory of premiums | 275,000 | ||
(To record the redemption of 2,200,000 coupons) |
Table (5)
2.
Identify the manner in which the items related to premium plan would be reported in the
2.
Explanation of Solution
Balance sheet: Balance Sheet is one of the financial statements that summarize the assets, the liabilities, and the Shareholder’s equity of a company at a given date. It is also known as the statement of financial status of the business.
Prepare the partial balance sheet as of December 31, 2019.
Company TC | |
Balance Sheet Statement (Partial) | |
As at December 31, 2019 | |
Assets | Amount |
Current assets: | |
Inventory of premiums (3) | $25,000 |
Liabilities | Amount |
Current liabilities: | |
Estimated premium liability (4) | $20,000 |
Table (6)
Working note (3):
Determine the amount of inventory premium as at December 31, 2019.
Working note (4):
Determine the amount of estimated premium liability as at December 31, 2019.
3.
Explain the effects on the financial statements if Company TC recorded the premium expense as the coupons were redeemed.
3.
Explanation of Solution
Effects on the financial statements:
The premium was offered by Company TC to increase the sales and the redemption of coupons is probable and that can be reasonably estimated. Thus, Company TC must record the estimate as an expense and the related liability during the sales period. If the estimate is not made, then the expenses will not match properly against the sales premium. As an effect of this Company TC’s expense would be understated by $20,000. In addition to this, Company TC’s liability will not properly reflect the probable obligation of the company. Thus, Company TC’s liability will be understated by $20,000.
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Chapter 9 Solutions
Intermediate Accounting: Reporting And Analysis
- Cash Rebates On January 1, 2020, 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. Eased on historical experience, the company estimates that 20% of the labels will be redeemed. During 2020, the company sold 5,000,000 frozen yogurt containers at 1 per container. From these sales, 800,000 labels were redeemed in 2020, 150,000 labels were redeemed in 2021, 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 2020 and 2021. 2. Next Level Assume that 300,000 labels were redeemed in 2021. Prepare the journal entries related to the cash rebate offer for 2021.arrow_forwardCoronado Frosted Flakes Company offers its customers a pottery cereal bowl if they send in 3 boxtops from Coronado Frosted Flakes boxes and $1. The company estimates that 60% of the boxtops will be redeemed. In 2021, the company sold 1360000 boxes of Frosted Flakes and customers redeemed 660000 boxtops receiving 220000 bowls. If the bowls cost Coronado Company $3 each, how much liability for outstanding premiums should be recorded at the end of 2021? $156000 $280000 $104000 $544000arrow_forwardSwifty Frosted Flakes Company offers its customers a pottery cereal bowl if they send in 3 boxtops from Swifty Frosted Flakes boxes and $2. The company estimates that 60% of the boxtops will be redeemed. In 2021, the company sold 1355000 boxes of Frosted Flakes and customers redeemed 660000 boxtops receiving 220000 bowls. If the bowls cost Swifty Company $4 each, how much liability for outstanding premiums should be recorded at the end of 2021? O $542000 O $278000 O $102000 O $204000arrow_forward
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- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning