Cracker Corporation began a special promotion in July 2016 in an attempt to incr

Question

Cracker Corporation began a special promotion in July 2016 in an attempt to increase sales. A coupon was included in various print advertisements. Customers could send in five coupons for a free prize. Each prize cost Cracker Corporation $2.00. Cracker's management estimated that 70% of the coupons would be redeemed. For the six months ended December 31, 2016, the following information is available

Required:

Record all necessary journal entries for the premium offer for 2016.

Explanation / Answer

Debit Credit Pemium Expenses A/C dr.                    800,000 Current Liabilty         800,000 (2000000/5)*2 Prize A/C dr.                    480,000 To Cash         480,000 Current Liabilty A/C dr.                    224,000 To Prize         224,000 560000/5*2

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