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 8,800 premiums at 85 cents each and sold 101,000 boxes of soap powder at $3.30 per box; 42,000 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.

Answer 1

Date Account Title and Explanation Debit Credit

2020 Inventory of premium $7,480

Cash $7,480

(To record the purchase of 8,800 premium at $0.85 each)

Date Account Title and Explanation Debit Credit

2020 Cash $333,300

Sales revenue $333,300

(To record sale of 101,000 boxes at $3.30 each)

Date Account Title and Explanation Debit Credit

2020 Premium Expenses $3,570

(42,000 * 0.1 * 0.85)

Inventory of premiums $3,570

(To record premium redemption)

Date Account Title and Explanation Debit Credit

Year end Premium expenses $1,581

2020 Premium liability $1,581

Workings

Particulars Amount

Estimated redemption on number of boxes sold 60,600

= 101,000 * 60%

Less: Coupon already redeemed 42,000

Premium liability of coupons 18,600

Cost of premium liability = 18,600 * 10% * 0.85

Cost of premium liability = $1,581