Question

Exercise 13-12 Ivanhoe 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, Ivanhoe Company purchased 9,000 premiums at 85 cents each and sold 109,000 boxes of soap powder at $3.10 per box; 48,000 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. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit (To record the premium inventory) (To record the sales) (To record the expense associated with the sale) (To record the premium liability)

Answer 1

Answer: Please see below

Explanation:

1) Journal to record  the purchase of  9000 premiums at 85 cents

Year Account Title and explanations        Debit      Credit

2020 n Inventory of premium                     $7,650

            Cash                                                                  $7,650  

working

Purchase price= Number of units purchased x price per unit

9000 x 0.85= $7,650

2) Journal to record  the sale  of 109,000 boxes at $3.10

Year Account Title and explanations        Debit               Credit

2020                    Cash                              $337,900

     Sales Revenue                                                    $337,900                                    

working

Sale price= Number of units sold x price sold per unit

109,000 boxes x $3.10= $337,900

3) Journal to record  the premium expenses

Year       Account Title and explanations        Debit      Credit

2020               Premium    Expenses                 $4,080

Inventory on premium                                                  $4080

working

Premium expenses= coupons presented for redemption / number of coupons to redeem premium x price per premium

= 48,000/10 x 0.85 = $4,080

4) Journal to record  the premium liability

year    Account Title and explanations        Debit      Credit

2020   Premium    Expenses                 $1,479

       Premium liability                                                 $1,479

working

 Estimated redemption on number of boxes sold  = number of boxes sold x probability of redemption= 109,000 x 60 %=  $65,400

premium liability of coupons  = estimated redemption of premiums - number of coupons already redeemed

= 65,400- 48,000 = 17,400

Cost of premium liabilty = premium liability of coupons /number of coupons per premium x rate per premium

17,400/10 x 0.85 ==$1,479