Question

Stellar Company offers an MP3 download (seven-single medley) as a premium for every 6 candy bar wrappers presented by customers together with $3.20. The candy bars are sold by the company to distributors for 30 cents each. The purchase price of each download code to the company is $2.95. In addition, it costs 50 cents to distribute each code. The results of the premium plan for the years 2017 and 2018 are as follows. (All purchases and sales are for cash.)

		2017		2018
MP3 codes purchased		330,000		435,600
Candy bars sold		2,996,000		2,887,200
Wrappers redeemed		1,584,000		1,980,000
2017 wrappers expected to be redeemed in 2018		382,800
2018 wrappers expected to be redeemed in 2019				462,000

Prepare the journal entries that should be made in 2018 to record the transactions related to the premium plan of the Stellar Company. (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. Round answers to 0 decimal places, e.g. 1,525.)

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:

In 2018:

Trans	Particulars	Debit ($)	Credit ($)	Working
1	Inventory of premium CDs	1285020		(435,600*2.95)
	Cash		1285020
2	Cash	866160		(2,887,200*0.30)
	Sales revenue		866160
3	Cash	891000		(1,980,000/6)*(3.20-0.50)
	Premium liability	15950		(382800/6)*(2.95+0.50-3.20)
	Premium expense	66550		(1980000/6)*(2.95+0.50-3.20)-15950
	Inventory of premium CDs		973500
4	Premium expense	19250		(462,000/6)*(2.95+0.50-3.20)
	Premium liability		19250