Problem 13-9 (Part Level Submission) 2017 2018 (a) Account Titles and Explanatio
ID: 2577893 • Letter: P
Question
Problem 13-9 (Part Level Submission)
2017
2018
(a)
Account Titles and Explanation
Debit
Credit
2017
(To record the premium inventory.)
(To record the sales.)
(To record the expense associated with the sale.)
(To record the premium liability.)
2018
(To record the premium inventory.)
(To record the sales.)
(To record the expense associated with the sale.)
(To record the premium liability.)
Problem 13-9 (Part Level Submission)
Pharoah Company offers an MP3 download (seven-single medley) as a premium for every 6 candy bar wrappers presented by customers together with $2.70. The candy bars are sold by the company to distributors for 30 cents each. The purchase price of each download code to the company is $2.45. In addition, it costs 50 cents to distribute each code. The results of the premium plan for the years 2017 and 2018 are as follows. (All purchases and sales are for cash.)2017
2018
MP3 codes purchased 375,000 495,000 Candy bars sold 2,635,900 2,550,500 Wrappers redeemed 1,800,000 2,250,000 2017 wrappers expected to be redeemed in 2018 435,000 2018 wrappers expected to be redeemed in 2019 525,000Explanation / Answer
Account title and explanatios Debit Credit 2017 Inventory of premium mp3 downloads 918750 Cash 918750 (375000*2.45) (To record the premium inventory) Cash 790770 Sales 790770 (2635900*0.30) (To record the sales) Cash [(1800000/6)*(2.70-0.50) 660000 Premium expense 75000 Inventory of premium mp3 downloads ((1800000/6)*2.45] 735000 (To record expense associated with sale) Premium expense 21750 Estimated liability for premiums 21750 [(435000/6)*0.30] (To record the premium liability) 2018 Inventory of premium mp3 downloads 1212750 Cash 1212750 (495000*2.45) (To record the premium inventory) Cash 765150 Sales 765150 (2550500*0.30) (To record the sales) Cash [(2250000/6)*(2.70-0.50) 825000 Premium expense 93750 Inventory of premium mp3 downloads ((2250000/6)*2.45] 918750 (To record expense associated with sale) Premium expense 26250 Estimated liability for premiums 26250 [(525000/6)*0.30] (To record the premium liability)