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To stimulate the sales of its Alladin breakfast cereal, Grouper Company places 1 coupon in each...

To stimulate the sales of its Alladin breakfast cereal, Grouper Company places 1 coupon in each box. 5 coupons are redeemable for a premium consisting of a children’s hand puppet. In 2021, the company purchases 46,100 puppets at $1.65 each and sells 440,000 boxes of Alladin at $3.90 a box. From its experience with other similar premium offers, the company estimates that 40% of the coupons issued will be mailed back for redemption. During 2021, 121,000 coupons are presented for redemption.

Prepare the journal entries that should be recorded in 2021 relative to the premium plan.


Account Titles and Explanation

Debit

Credit

(To record the premium inventory.)

(To record the sales.)

(To record the expense associated with the sale.)

(To record the premium liability.)
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Answer #1

ANSWER:

Account title Debit Credit

Premium puppet inventory (46100 x $1.65)

Cash

$76065

.

.

$76065

Cash (440000 x $3.90)

Sales

$1716000

.

.

$1716000

Premium expense {(121000/5) x $1.65}

Premium puppets inventory

$39930

.

.

$39930

Premium expense {(440000 x 40%) - 121000}/5 x $1.65

Estimated liability for premiums

$18150

.

.

$18150
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