question archive Sandhill Corporation sold Sugar Frosted Cocoa Bombs, a children’s breakfast cereal
Sandhill Corporation sold Sugar Frosted Cocoa Bombs, a children’s breakfast cereal
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Sandhill Corporation sold Sugar Frosted Cocoa Bombs, a children’s breakfast cereal. As a promotion, Sandhill offered its customers a free music CD in exchange for 4 boxtops, plus $3.00 to cover postage and handling. The CD cost Sandhill $3.25, and postage costs to mail the CDs out to customers were $2.50. Sandhill estimated that 75% of its customers would redeem boxtops. Sandhillpurchased 10,200 CDs at the start of the promotion in November, 2020. 152,000 boxes of cereal were sold during November and December, 2020, and Sandhill’s year-end was December 31. Prior to the end of the fiscal year, 9,000 customers took advantage of the offer, which continued until February, 2021. Sandhill follows ASPE and uses the expense approach to account for its premiums.
Prepare the journal entry to record the purchase of the promotional CDs. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
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Account Titles and Explanation |
Debit |
Credit |
List of Accounts
Prepare the journal entry to record the redemption by 9,000 customers. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
|
Account Titles and Explanation |
Debit |
Credit |
List of Accounts
Prepare the journal entry to record the year-end accrual entry for estimated premium expense. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
|
Account Titles and Explanation |
Debit |
Credit |
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1.
| Journal entry for purchase of promotional CD- | ||
| Particulars | Debit | Credit |
| Inventory of premiums A/C | $33,150 | |
| cash | $33,150 |
Total CD bought = 10,200
Cost Per CD=$3.25
Total Cost = 10,200*3.25
= $33,150
2.
| journal entry to record the redemption by 9,000 customers- | ||
| Particulars | Debit | Credit |
| Cash | 24,750 | |
| Premium Income | 27,000 | |
| Premium Expense | 22,500 | |
| Inventory of Premiums | 29,250 |
9,000 customer Redeemed = 9,000 * 3.25 = $29,250
post and handelling recovered from customer = 9,000 * $3.00 = $27,000
Post and handelling expenses = 9,000 * 2.50 = $22,500
3.
| journal entry to record the year-end accrual entry for estimated premium expense- | ||
| Particulars | Debit | Credit |
| Premium Expense | $59,475 | |
| Estimated liability for Premiums | $59,475 |
As company estimates that 75% would redeem boxtops
Total cereals sold = 152,000 boxes*75%
=114,000
A CD is given as free for every 4 boxes,so total CD required = 114,000/4
= 28,500
CD already bought = 10200
Estimated CD to be bought = 28,500 - 10200
= 18,300 pc
Total Cost to buy CD = Total Number of CD*Cost per CD
= 18,300 *3.25
=$59,475
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