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
<u>Workings</u>
Particulars Amount
Estimated redemption on number of boxes sold 60,600
= 101,000 * 60%
Less: Coupon already redeemed <u> 42,000 </u>
Premium liability of coupons <u>18,600</u>
Cost of premium liability = 18,600 * 10% * 0.85
Cost of premium liability = $1,581
