Question

Kollege Canada makes and sells a breakfast cereal called Super Wheat Crunch. As a promotion, Kollegg offered its customers a free music CD in exchange for cereal boxtops, plus money to cover postage and handling. Kollegg has a December 31 year end. Kollegg follows ASPE and uses the expense approach to account for its premiums. Other information pertaining to the cereal promotion, which started on November 1, 2020 and ended on February 28, 2021, follows: $ $ $ Number of boxtops to be remitted by customers to receive a free CD Amount of cash to be remitted by each customer to receive a free CD Cost of each CD to Kollege Postage cost to mail each CD to customer Estimated percentage of boxtops that would be redeemed Number of CDs purchased by Kollegg on October 1, 2020 Number of boxes of cereal sold in November and December 2020 Selling price for each box of cereal Number of boxtops redeemed on or prior to December 31, 2020 6 3.45 3.52 2.63 70% 23,088 112,392 8 30,714 $ $ Required: Prepare all journal entries that should be made in 2020 related to the premium plan. Assume that all CDs are purchased with cash, and that cash is received immediately for all sales.

Answer 1

Journal entries to posted on Decemebr 31st 2020

Cash Dr   899136
To Sales        Cr   899136
(Cash received by selling 112392 boxes @ of $8)

CD purchase exp       Dr   81269.76
To Cash Cr   81269.76
(23088CD's purchased@$3.52)

Postage           Dr   13462.97
To Cash           Cr 13462.97
(Postage expenses calculated on the basis of boxtops redeemed/8 i.e.30714/6*2.63)

Postage expenses paid to customers       Dr   17660.55
To Cash Cr   17660.55
(Postage expenses paid calculated on the basis of boxtops redeemed/8 i.e.30714/6*3.45)

Provision for future redemption       Dr   48597
To Cash Cr   48597

(Estaimated redemption 70% of sales, so 112392*70% i.e 78674
Redeemed boxtops upto Dec is 30714 so 78674-30714= 48599 is remaining
Estimated future redemption will ve 48599/6 =7993
Future estuamted cost (Postage and Postage paid to customers ) = 7993*(3.45+2.63))