Question

Nash Company includes one coupon in each box of soap powder that it packs, and 10 coupons are redeemable for a premium (a kitchen utensil). In 2020, Nash Company purchased 8,000 premiums at 75 cents each and sold 105,000 boxes of soap powder at $3.20 per box; 41,000 coupons were presented for redemption in 2020. It is estimated that 60% of the coupons will eventually be presented for redemption. Prepare all the entries that would be made relative to sales of soap powder and to the premium plan in 2020. (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.) Account Titles and Explanation Debit Credit?

Answer 1

The question pertains to recording accounting entries for Nash Company's soap powder sales and the premium coupons attached. Entries would include recording sales, purchasing premiums, redeeming coupons, and estimating coupon redemption liability.

Step-by-step explanation:

The student's question relates to accounting entries for sales of soap powder and the associated premium plan incentives offered by Nash Company. To record these transactions for 2020, the following journal entries would be made:

• Sales of Soap Powder: For each box sold at $3.20, the entry would debit Cash or Accounts Receivable and credit Sales Revenue.
• Purchase of Premiums: Purchasing 8,000 premiums at $0.75 each requires an entry to debit Premium Inventory and credit Cash or Accounts Payable.
• Coupon Redemption: When coupons are redeemed, the entry would debit Premium Expense and credit Premium Inventory for the cost of each redeemed premium.
• Estimation of Coupon Redemption: An estimated liability must be created for the coupons expected to be redeemed. With a 60% estimated redemption rate, the corresponding entry would involve debiting Premium Expense and crediting Premium Liability for the estimated obligation based on the number of coupons distributed through sales.

The exact amounts for each entry depend on the total sales, coupons presented for redemption, and the cost of the premiums.