Question

Cullumber Corporation sold Sugar Frosted Cocoa Bombs, a children’s breakfast cereal. As a promotion, Cullumber offered its customers a free music CD in exchange for 4 boxtops, plus $3.10 to cover postage and handling. The CD cost Cullumber $3.35, and postage costs to mail the CDs out to customers were $2.50. Cullumber estimated that 80% of its customers would redeem boxtops. Cullumber purchased 10,800 CDs at the start of the promotion in November, 2020. 125,000 boxes of cereal were sold during November and December, 2020, and Cullumber’s year-end was December 31. Prior to the end of the fiscal year, 6,400 customers took advantage of the offer, which continued until February, 2021. Cullumber follows ASPE and uses the expense approach to account for its premiums.

View Policies Show Attempt History Current Attempt in Progress Cullumber Corporation sold Sugar Frosted Cocoa Bombs, a children's breakfast cereal. As a promotion, Cullumber offered its customers a free music CD in exchange for 4 boxtops, plus $3.10 to cover postage and handling. The CD cost Cullumber $3.35, and postage costs to mail the CDs out to customers were $2.50. Cullumber estimated that 80% of its customers would redeem boxtops. Cullumber purchased 10,800 CDs at the start of the promotion in November, 2020. 125,000 boxes of cereal were sold during November and December, 2020, and Cullumber's year-end was December 31. Prior to the end of the fiscal year, 6,400 customers took advantage of the offer, which continued until February, 2021. Cullumber follows ASPE and uses the expense approach to account for its premiums. Your answer is 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 for the amounts.) Account Titles and Explanation Debit Credit Inventory of Premiums 36180 Cash 36180 eTextbook and Media Assistance Used Your answer is partially correct. Prepare the journal entry to record the redemption by 6,400 customers. (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 for the amounts.) Debit Credit Account Titles and Explanation Cash 17600 Premium Expense 3840 Inventory of Premiums 21440

Answer 1

1)Journal entry for purchase of promotional CD-

Total CD bought=10800

Cost Per CD=$3.35

Total Cost=10800*3.35

=$36180

Debit Credit

Inventory of premiums A/C    36180

cash 36180

2)6400 customer Redeemed=6400*3.35=$21440

post and handelling recovered from customer=6400*$3.10=19840

Post and handelling expenses=6400*2.50=16000

Debit credit

Cash 17600

Premium Income 19840

Premium Expense 16000

Inventory of Premiums 21440

3)As company estimates that 80% would redeem boxtops

Total cereals sold=125000boxes*80%

=100000

A CD is given as free for every 4 boxes,so total CD required=100000/4

=25000

CD already bought=10800

Estimated CD to be bought=25000-10800

=14200 pc

Total Cost to buy CD=Total NUmber of CD*Cost per CD

=14200*3.35

=$47570

Debit Credit

Premium Expense 47570

Estimated liability for Premiums 47570