Question

Blossom Company includes one coupon in each box of soap powder that it packs, and 10 coupons are redeemable for a premium (a kitchen utensil). In 2020, Blossom Company purchased 9,500 premiums at 75 cents each and sold 120,000 boxes of soap powder at $3.00 per box; 41,800 coupons were presented for redemption in 2020. It is estimated that 60% of the coupons will eventually be presented for redemption.
Prepare all the entries that would be made relative to sales of soap powder and to the premium plan in 2020.

Answer 1

Answer:

Dr Purchased premiums 7,125

Cr Cash 7,125

Dr Cash 360,000

Cr Sales 360,000

Dr Premium Expense 3,135

Cr Inventory Premiums 3,135

Dr Premium Expense 2,265

Cr Estimated Liability Premiums 2,265

Explanation:

Blossom Company Journal entry

Dr Purchased premiums 7,125

(9,500×0.75)

Cr Cash 7,125

Dr Cash 360,000

(120,000×3.00per box)

Cr Sales 360,000

Dr Premium Expense 3,135

Cr Inventory Premiums (41,800 ÷ 10 coupons×0.75) 3,135

Dr Premium Expense 2,265

Cr Estimated Liability Premiums 2,265

[(120,000 ×0.60) – 41,800) ÷ 10 × .75]

=72,000-41,800÷10×.75

=30,200÷10×.75

=3020×.75

=2,265