Question

Martinez Corporation sold Sugar Frosted Cocoa Bombs, a children's breakfast cereal. As a promotion, Martinez offered its customers a free music CD in exchange for 4 boxtops, plus $3.00 to cover postage and handling. The CD cost Martinez $3.25, and postage costs to mail the CDs out to customers were $2.50. Martinez estimated that 70% of its customers would redeem boxtops. Martinez purchased 11,000 CDs at the start of the promotion in November, 2020. 120,000 boxes of cereal were sold during November and December, 2020, and Martinez's year-end was December 31. Prior to the end of the fiscal year, 7,700 customers took advantage of the offer, which continued until February, 2021. Martinez follows ASPE and uses the expense approach to account for its premiums. Your answer is partially correct. Prepare the journal entry to record the purchase of the promotional CDs. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.) Account Titles and Explanation Debit Credit Inventory of Premiums 63,250 Cash 63,250 eTextbook and Media

Answer 1

Accounts Titles and Explanation	Debit	Credit
Inventory of Premiums	$35,750
Cash		$35,750
(11,000 x $3.25)
Cash [(7,700/4) x $3.00]	$5,775
Premium Expense	$481
Inventory of Premiums [(7,700/4) x $3.25]		$6,256