30.03.2023 - 04:57

Flint Company includes 1 coupon in each box of soap powder that it packs, and 10 coupons are redeemable for a premium (a kitchen utensil). In 2017, Flint Company purchased 9,700 premiums at 85 cents each and sold 113,000 boxes of soap powder at $3.60 per

Question:

Flint Company includes 1 coupon in each box of soap powder that it packs, and 10 coupons are redeemable for a premium (a kitchen utensil). In 2017, Flint Company purchased 9,700 premiums at 85 cents each and sold 113,000 boxes of soap powder at $3.60 per box; 48,200 coupons were presented for redemption in 2017. 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 2017.

Answers (1)
  • Henrietta
    April 5, 2023 в 05:19
    The entries that would be made relative to sales of soap powder and to the premium plan in 2017 are as follows: 1. To record the sale of soap powder: Debit: Cash $406,800 ($3.60 x 113,000) Credit: Sales Revenue $406,800 2. To record the cost of premiums purchased: Debit: Premiums Inventory $8,245 ($0.85 x 9,700) Credit: Cash $8,245 3. To record the redemption of coupons: Debit: Premiums Expense $41,740 ($0.85 x 48,200) Credit: Premiums Inventory $41,740 4. To record the estimated liability for unredeemed coupons: Debit: Premiums Liability $22,980 (60% of 38,300 unredeemed coupons) Credit: Premiums Revenue $22,980 Explanation: 1. The sale of soap powder is recorded as an increase in cash and sales revenue. 2. The cost of premiums purchased is recorded as an increase in premiums inventory and a decrease in cash. 3. The redemption of coupons is recorded as an expense for the company, reducing the value of premiums inventory. 4. The estimated liability for unredeemed coupons is recorded as a liability on the company's balance sheet and a reduction in premiums revenue, as the company is expected to pay out the value of those coupons in the future. The estimated liability is calculated as 60% of the unredeemed coupons, as it is expected that only a portion of the coupons distributed will be eventually redeemed.
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