Question

Kingbird Company offers a set of building blocks to customers who send in 3 UPC codes from Kingbird cereal, along with 40¢. The block sets cost Kingbird $1.30 each to purchase and 80¢ each to mail to customers. During 2020, Kingbird sold 1,548,000 boxes of cereal. The company expects 30% of the UPC codes to be sent in. During 2020, 154,800 UPC codes were redeemed. Prepare Kingbird’s December 31, 2020, adjusting entry. (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.)

Answer 1

The amount of premium expenses calculated as follows:

	$
UPC codes Sent ( 1,548,000 * 30%)	464,400
Less: UPC codes were redeemed	(154,800)
Balance UPC codes to be redeemed	309,600
Estimated Liability ( 309,600 / 3 ) * ($1.30 + $0.80 - 0.40)	$175,440

Adjusting journal entry is as follows:

Date	Account and Explanation	Debit ($)	Credit ($)
December 31, 2020	Premium Expenses	175,440
	Estimated Liability for Premium Expenses		175,440
	(Recorded Estimated Liability for Premium Expenses)