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
Coupons distributed 2,000,000
Prizes purchased 240,000
Coupons redeemed 560,000
Required:

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

Answer 1

Answer:

The journal entries for the premium offer for 2016 would be as follows:

                                              Debit             Credit

Pemium Expenses A/C dr.  $800,000  

                          Current Liabilty          $800,000

 

Prize A/C dr.                    $480,000  

                                       Cash          $480,000

Current Liabilty A/C dr.      $224,000  

                                            Prize          $224,000

Explanation:

In order to record the journal entries for the premium offer for 2016, we need to calculate first the amount of the premium expenses as follows:

Pemium Expenses A/C dr=($2,000,000/5)*2=$800,000  

Therefore journal entries for the premium offer for 2016 would be as follows:

                                              Debit          Credit

Pemium Expenses A/C dr.  $800,000  

                          Current Liabilty          $800,000

 

Prize A/C dr.                    $480,000  

                                       Cash          $480,000

Prize=$560,000/5*2=$224,000

Current Liabilty A/C dr.      $224,000  

                                            Prize          $224,000