Question

Nash 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, Nash Company purchased 8,800 premiums at 85 cents each and sold 101,000 boxes of soap powder at $3.30 per box; 42,000 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:

Date   Account Title and Explanation      Debit     Credit

2020  Inventory of premium                    $7,480

               Cash                                                           $7,480

           (To record the purchase of 8,800 premium at $0.85 each)

Date   Account Title and Explanation       Debit          Credit

2020   Cash                                                $333,300

                Sales revenue                                               $333,300

            (To record sale of 101,000 boxes at $3.30 each)

Date   Account Title and Explanation         Debit          Credit

2020   Premium Expenses                           $3,570

            (42,000 * 0.1 * 0.85)

                    Inventory of premiums                                 $3,570

              (To record premium redemption)

Date          Account Title and Explanation       Debit       Credit

Year end   Premium expenses                          $1,581

2020               Premium liability                                         $1,581

Workings

Particulars                                                                         Amount

Estimated redemption on number of boxes sold          60,600

= 101,000 * 60%

Less: Coupon already redeemed                                   42,000  

Premium liability of coupons                                         18,600

Cost of premium liability = 18,600 * 10% * 0.85

Cost of premium liability = $1,581