Question

Irwin company Music shop gives its customers coupons redeemable for a poster plus a Bo Diddley CD. One coupon is issued foe each dollar of sales. On the surrender of 100 coupons and $6.00 cash, the poster and CD are given to the customer. Sales for the first were $700,000, and the coupons redeemed totaled 420,000, 140,000 couponds are expected to be redeemed next year. Irwin Music Shop bought 20,000 posters at $2.50/poster and 20,000 CDs at $7.50/CD. Prepare the entries for the coupons redeemed and to record the estimated premium liability as of the end of the year.

Answer 1

To Record Coupons redeemed :
Period : 1
Accounts title and explaination	Debit	Credit
Coupon expense	$     16,800			(420000/100)*(10-6)
Cash	$     25,200			(420000/100*6)
Inventory of coupons posters and CD's		$     42,000
(To Record the couponse redeemed)
To Record the estimated liability :
Period : 1
Coupon expense	$     11,200
Estimated liability for coupons		$     11,200		(700000*100%-420000)/100*4
(To record esteemed liability)
Note : Assumed that 100% of the coupons will be presented for redemption.