Sycamore Candy Company offers a CD single as a premium for every five candy bar wrappers presented by customers together with $2.50. The candy bars are sold by the company to distributors for 30 cents each. The purchase price of each CD to the company is $2.25; in addition it costs 50 cents to mail each CD. The results of the premium plan for the years 2010 and 2011 are as follows. (All purchases and sales are for cash.)
2010 2011
CDs purchased 250,000 330,000
Candy bars sold 2,895,400 2,743,600
Wrappers redeemed 1,200,000 1,500,000
2010 wrappers expected to be redeemed in 2011 290,000
2011 wrappers expected to be redeemed in 2012 350,000
Prepare the journal entries that should be made in 2010 and 2011 to record the transactions related to the premium plan of the Sycamore Candy Company. (For multiple debit/credit entries, list amounts from largest to smallest, e.g. 10, 8, 6.)
Description/Account Debit Credit
2010
SalesPremium expenseLiability for premiumsInventory of premium CD’sCash
Premium expenseSalesLiability for premiumsInventory of premium CD’sCash
(To record the purchase of CD’s.)
Premium expenseCashSalesLiability for premiumsInventory of premium CD’s
Inventory of premium CD’sLiability for premiumsPremium expenseSalesCash
(To record the sale of candy bars.)
Premium expenseCashLiability for premiumsInventory of premium CD’sSales
Liability for premiumsPremium expenseInventory of premium CD’sCashSales
Liability for premiumsCashInventory of premium CD’sPremium expenseSales
(To record the redemption of wrappers, the receipt of cash & the mailing of CD’s.)
CashInventory of premium CD’sSalesLiability for premiumsPremium expense
SalesPremium expenseLiability for premiumsCashInventory of premium CD’s
(To record the estimated liability for premium claims outstanding.)
2011
Liability for premiumsInventory of premium CD’sCashSalesPremium expense
SalesLiability for premiumsPremium expenseInventory of premium CD’sCash
(To record the purchase of CD’s.)
Liability for premiumsInventory of premium CD’sSalesCashPremium expense
SalesLiability for premiumsInventory of premium CD’sCashPremium expense
(To record the sale of candy bars.)
SalesLiability for premiumsCashInventory of premium CD’sPremium expense
Premium expenseInventory of premium CD’sCashSalesLiability for premiums
SalesPremium expenseCashLiability for premiumsInventory of premium CD’s
Liability for premiumsInventory of premium CD’sCashPremium expenseSales
(To record the redemption of wrappers, the receipt of cash & the mailing of CD’s.)
CashSalesLiability for premiumsPremium expenseInventory of premium CD’s
CashSalesInventory of premium CD’sLiability for premiumsPremium expense
(To record the estimated liability for premium claims outstanding.)
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