Question

Vaughn Company includes 1 coupon in each box of soap powder that it packs, and 10 coupons are redeemable for a premium (a kitchen utensil). In 2017, Vaughn Company purchased 8,000 premiums at 80 cents each and sold 117,000 boxes of soap powder at $3.50 per box; 42,500 coupons were presented for redemption in 2017. 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 2017.

Answer 1

Answer and Explanation:

The journal entries are as follows:

1. Premium inventory (8,000 × $0.80) $6,400

To cash $6,400

(being the inventory is purchased for cash)

2. Cash Dr (117,000 × $3.50) $409,500

To sales revenue $409,500

(Being the cash received is recorded)

3. Premium expense $3,400 (42,500 × 10% × $0.80)

To Premium inventory $3,400

(Being premium expense is recorded)

4. Premium expense Dr $2,216

To premium liability $2,216

(Being premium expense is recorded)

Working note

= (117,000 × 60%) - (42,500) × 0.10 × 0.80