Question

On January 1, 2017, Frozen delights offers its customers a $3 cash rebate for returning 4 labels. One label is on each carton of ice cream. Based on historical experience, the company estimates that 30% of labels will be redeemed. During 2017, the company sold 1,000,000 cartons of ice cream at $5 each. From these sales, 240,000 labels were redeemed in 2017. The rebate offer expires December 31, 2017.

Prepare journal entries for the sale of the ice cream, the redemption of the labels, and for labels that were not redeemed. Do not forget journal entry descriptions.


SHOW YOUR CALCULATIONS!!!

Answer 1

In the books of Frozen Delights:

	Account Titles and Explanations	Debit	Credit
2017		$	$
a.	Cash	5,000,000
	Sales		5,000,000
	To record sales revenue
b.	Rebate Expense ( 1,000,000 / 4 x 30 % x $ 3 )	225,000
	Rebate Liability		225,000
	To record accrual of rebate expense
c.	Rebate Liability ( 240,000 / 4 x $ 3)	180,000
	Cash		180,000
	To record redemption of labels
d.	Rebate Liability	45,000
	Rebate Expense		45,000
	To record write back of rebate liability on expired labels